MFs again turn net sellers of equities

Volatility in the equity markets is again affecting domestic mutual funds. Companies, after a brief spell, pre-Diwali, of being net buyers, have turned net sellers in equities.

After Diwali, the funds have seen continuous selling. Fund managers say it is primarily due to profit booking by institutional investors, coupled with relentless redemption pressure from retail investors.

Achal Kumar Gupta, managing director, SBI Mutual Fund, said, “Institutional investors don’t come with a long-term call. They book profits and move out.”

Till Diwali, fund houses’ net buying in equities was Rs 1,557 crore. Since then till yesterday, according to data from the Securities and Exchange Board of India, their net selling has been Rs 1,023.4 crore.

“Markets were richly overbought. Corrections were anticipated, which resulted in investors going out of the markets,” said the chief investment officer of a leading fund house owned by a state-sector bank. After Diwali, the Bombay Stock Exchange Sensitive Index or Sensex has lost 1,313 points or 6.25 per cent. Today, it closed 1.3 per cent lower, at 19,691.84.

Fund managers noted cash levels were not high. “Selling is all because of redemption. With negative global cues resurfacing from Europe and due to the year-ending effect, there will be more profit bookings. I believe there would not be any respite till mid-December,” said the equity head of a mid-sized fund house.

The equity segment has seen net outflows since June. The major fund outflow came in the past two months, of Rs 10,000 crore of outflows from equity schemes.

Banks, consumer non-durables, software, pharmaceuticals and industrial capital goods were the top sectors where the fund market had exposure of over 40 per cent of its equity assets in the first half of the current financial year.

Fund managers now sound cautious on banking. “The shares of almost all banking stocks have surged so high that there is little room for any further upside movement. It would be a risky game to favour a specific sector in a volatile market. Industry is getting more stock-specific, irrespective of the performance of the sector the company belongs to,” said the chief investment officer of a large fund house.

The industry’s average asset under management as on October 31 was Rs 6,98,853 crore, a dip of two per cent over the previous month’s assets.