Equity MFs back to selling spree to meet redemptions

Sold stocks worth Rs 1,527 crore so far this month

The wave of positive sentiments seldom stays long for India's equity fund managers as far as their investment trend in the stock markets is concerned.

After a brief shopping spree during Christmas, this year, once again, has begun on a heavy selling note. Statistics available with the Securities and Exchange Board of India (Sebi) show that so far equity fund managers sold equities worth Rs 1,527 crore. Interestingly. barring three trading sessions this month, all witnessed selling.

This comes as a surprise as fund managers have been on a continuous buying spree in the last few sessions of the last year. Rather, taking into account the collective selling in November and December, it stood at a little less than Rs 900 crore.

Selling of holdings in the current month is contrary to what was seen in the immediate previous months. It is also spilling water on the optimism of various fund managers who had been quite certain of continuation of recent trend where in investors had started looking at equities. In the corresponding previous month, equity investment managers had sold shares worth a whopping Rs 5,200 crore.

"Redemptions are unabated. But that is not only the one reason one should look at. Selling being witnessed could also be a result of profit bookings by fund managers," says a national sales manager of a private bank-sponsored fund house.

During the first three quarters of 2013-14, India's equity schemes have already sold stocks worth Rs 13,300 crore. Considering the rise in the stock markets last year when key indices gained nearly 7 per cent and surpassed the previous peaks, the net selling of this much magnitude, in itself, explains how fund managers missed to reap the benefit of the rising market amid grappling with redemption requests.

However, compared to the previous financial year the net selling is far lesser - a relief for the equity mutual funds. In 2012-13, equity schemes sold holdings worth Rs 22,750 crore - largest in sector's history.

Chief investment officer (CIO) of one of the largest fund houses, says, "What choices do we have in such situation? We are liquidating holdings to make sure we do not run short to honour investors' selling requests."

According to sector officials, when Sensex is inching closer to its record highs it's normal to see hike in redemption requests. "There are still many investors which are stuck for long years now. With expected volatility ahead, which could be steep, it is not surprising to see people booking little bit of profits and moving out," said chief executive officer (CEO) of a small-sized fund house.

In 2013, industry lost about 4 million equity folios. This not only brought back the equity investors' base to below 30 million but pushed the industry back to 2007-08 levels. It was during the last leg of the 2005-2008 bully rally that close to 2 crore equity accounts were opened by the industry. Majority of these investors remained stuck post Lehman Crisis. And they tend to lose out no opportunity to exit as and when they see benchmark indices conquering their previous peaks.