MFs' pace of buying in May slows as shares surge

Fund managers collectively invested Rs 8,959 cr in May, a fifth less than the Rs 11,244 cr in April

Mutual funds (MFs) have dropped the pace of buying amid the benchmark indices touching record highs in May.

According to statistics from the Securities and Exchange Board of India (Sebi), fund managers collectively invested Rs 8,959 crore in May, a fifth less than the Rs 11,244 crore in April.

The investment figure last month was, however, much more than the average monthly investment of Rs 6,350 crore for 2017 so far.

Some fund managers were taking money off the table as stocks climbed to record levels, resulting in lower investment tally.

"Markets on the index level are high enough to make us re-look at our stock picks. There is certainly a mismatch between market expectations and ground developments. The margin of safety has taken a hit. Capital expenditure and earnings are not rising as we had been expecting. We are cautious and risk-adjustment against returns is a top priority at such times, while concentrating on a few large companies," says the chief investment officer of one of the top 10 fund houses.

Implementation of the coming goods and services tax (GST) is a major concern, says an equity head. "We foresee a disruption for a quarter or two after implementation. Today's market, driven by excess liquidity, might take a pause or correction. We are trying to play safe. Already, you have seen the shrinkage in GDP (gross domestic product) growth (March quarter data); more such negative factors could follow," he adds.

According to him, stocks chased by fund managers during May included HDFC Bank, ITC, Mahindra & Mahindra and ICICI Bank. Some took a contrarian call on pharmaceuticals and information technology, with Sun Pharmaceutical, Cipla, Infosys and Tech Mahindra among the preferred ones.

The reduction in net investments is despite the fact that inflow in the equity segment remained strong. The numbers would be issued next week by the Association of Mutual Funds in India. In April, net inflow in equity was Rs 9,500 crore. Fund managers say they'd not be surprised if May saw further cash pile-up, already at a high level, in equity folios.