MF cash levels rise in Aug amid market crash

Equity schemes' cash holdings rose to near Rs 15,000 cr, most in 2015

Cash holdings in equity schemes rose to their highest level this year in August amid a sharp correction in stock prices on global volatility. Cash as a percentage of equity assets under management was 4.25 per cent in August, up from 3.56 per cent in July. The money available with fund houses to buy stocks was nearly Rs 15,000 crore, the most in this year.

The benchmark stock indices had dropped around 6.5 per cent in August, their biggest fall since November 2011. Fund houses had pumped nearly Rs 10,000 crore into equities last month. However, heightened volatility kept them from buying several stocks available at good valuations after the correction.

"There market was in transition in August. This led to delayed deployment of funds," said Pankaj Murarka, head of equity at Axis Mutual Fund. He added some fund houses were selling stocks in mid-cap schemes to generate cash in anticipation of redemptions. The top five fund houses -HDFC Mutual Fund, ICICI Prudential MF, Reliance MF, Birla Sun LIfe MF and UTI MF -increased their cash holdings in August.

"We reduced our exposure to mid-cap stocks in our portfolio to less than 30 per cent. And, as the market cracked, we aggressively bought large caps like Infosys, ICICI Bank and Axis Bank. A mismatch in our selling of mid-caps and buying large-caps may have increased cash in our portfolio," said the chief investment officer of a large fund house.

Fund managers said they did not intend to sit on the cash and would deploy it if there were good buying opportunities and if investor flows continued. "Sitting on cash was certainly not a directional call. At times, there is a lag between selling and buying, which impacts cash levels," said Ritesh Jain, chief investment officer of Tata AMC.

Fund houses' fears of redemptions did not materialise as investors continued to put money into equity schemes despite the market fall. Equity schemes saw inflows of Rs 9,100 crore in August, higher than the Rs 6,133 crore seen a month earlier. Fund managers have bought shares worth Rs 40,000 crore since April, almost equivalent to what they bought in the whole of 2014-15.

Equity assets under management stood at Rs 3.83 lakh crore in August, while the total assets under management were Rs 12.6 lakh crore.