Mutual funds fear repeat of September redemptions

The equity segment of the domestic mutual fund industry is likely to bleed this month, too.

Anticipating similar outflows as in September, when the industry saw redemption of over Rs 7,000 crore from its equity schemes, fund houses are gearing up to tackle a repeat.

“It’s not even a fortnight of the current month but the situation is no different from what we saw last month. Things are in a bad shape and the redemption pressure continues to take a toll,” said the chief executive officer of a mid-sized fund house.
 

UNDER PRESSURE
Month	Cash corpus	Net outflow	Net selling
April	8,923.99	-1,333	-1,410.40
May	9,918.96	1,256	98.60
June	7,943.92	-1,446	-1,093.10
July	9,300.23	-3,400	-4,405.30
August	9,293.90	-2,890	-3,169.60
September	8,127.81	-7,011	-7,236.30
October*	NA	NA	-2,572.50
*Till October 11, All figures in Rs  crore  Source: Value Research & Sebi

Last month, net outflows were almost double of what industry experts were expecting. Most fund house heads Business Standard talked to had anticipated only around Rs 3,000 crore of net outflows, way below what actually happened.

According to data with the Securities and Exchange Board of India (Sebi), MF players had sold shares worth Rs 2,572.5 crore till this Monday. This is the highest net sellout by the fund market during the first half of a month this year. Earlier months saw net selling of between Rs 800 crore and Rs 1,400 crore, except for April (around Rs 1,550 crore). Only June saw net buying, of Rs 695 crore.

“There is hardly any cash available with us. We need to generate cash by selling stocks. This month, selling has only intensified,” said the equity head of a large fund house.

Dipping into cash
According to the executive vice-president of a domestic brokerage, an independent expert on MFs, “Last month, fund houses could not meet redemption pressure only by selling shares. They had to take out some amount from their cash corpus.”

According to data from Value Research, which tracks the MF sector, equity cash levels of the industry had been squeezed to Rs 8,127.8 crore as on September 30, from Rs 9,293.90 crore in August. “Higher selling this month indicates the redemption pressure has not yet eased. If they do not sell, it will be hard to meet the kind of redemptions September faced, as existing liquidity will substantially dip to a little over Rs 1,000 crore,” he added.

Apart from redemptions, another reason for selling shares are upcoming public issues. “We need to have enough cash, as the current norms require 100 per cent upfront payment while applying in initial public offerings (IPOs),” said the chief investment officer of a mid-sized fund house.

In several past issues, MF houses have been anchor investors. With several IPOs scheduled in the second half of the financial year, fund houses do not wish to miss a chance.

So far this financial year, the industry has seen a net outflow of Rs 14,624 crore. The net selling of equities during the period is Rs 24,000 crore.