MFs sold shares worth Rs 9,600 cr in market rally between April and July

Lack of earnings visibility in near-term, investor behaviour contribute to selling

Domestic fund managers are taking money off the table even as the markets have gained over 45 per cent since the lows of the last week of March. 

Fund houses have been net sellers in the current financial year, selling Rs 9,639 crore worth of shares.

Except for May, when markets consolidated and ended in the red, fund houses have been net sellers in all the months, taking advantage of the rally to exit equity positions.

“There has been some lightening up of positions because earnings are not expected to be strong. Mutual fund (MF) industry players might also be seeing weakness in flows or outflows, which could be making fund managers sell,” said Sonam Udasi, senior fund manager at Tata MF. “There has also been some sector-specific buying and selling,” he added.

In April, when markets bounced back with gains of 14.68 per cent, mutual funds sold shares worth Rs 7,965 crore. The next month, when there was consolidation, they bought shares worth Rs 6,522 crore. 

In June and July, when the Nifty clocked over 7 per cent gains in each month, fund house sold Rs 8,196 crore worth of shares. 

 

 

“Markets have almost rallied back to pre-Covid levels even as economic uncertainty remains,” said another fund manager.

Experts say investor behaviour in recent months has also been a major reason for how fund houses have traded in the equity markets.

“Deployment of funds by MFs are heavily driven by the inflows and redemptions in the equity schemes. Recently, we have seen equity flows seeing a decline, which would have had an impact on fund deployment,” said Vidya Bala, co-founder of PrimeInvestor. 
 

“There is also the element of fund managers being not too comfortable with the market valuations,” she added.

In June, equity schemes saw net inflows of Rs 240 crore, which was the worst month for these schemes in four years. According to industry estimates, July could have seen further weakness as net flows were likely to have been negative.

Experts say the slowdown in equity investments is also because of re-balancing in hybrid categories, which invest in both debt and equity instruments.

“In March, there would have been strong buying by dynamic asset allocation funds as equity valuations had corrected sharply. However, as markets ran-up, the schemes would have had to trim their holdings, as the schemes’ mandates require increasing debt levels when market valuations run up,” said Kaustubh Belapurkar, director-fund research, Morningstar India.

“Aggressive hybrid schemes, which also need to maintain 65-70 per cent holdings in equity schemes, may have had to re-balance their portfolios when markets ran up,” he added. During the rally, the equity component in such schemes could have gone up to 80 per cent, requiring unwinding of some positions to cut equity exposure levels, say some experts.