Liquidity returns to market

MFs see Rs 35,000-cr inflow, as call rates slide and Sensex rises 323 points.

Mutual funds breathed easy today, with the flow into liquid and liquid-plus schemes soaring to Rs 30,000-35,000 crore. This is in contrast to the situation over the past few days when a liquidity squeeze caused by the Coal India issue soaking up cash forced companies and banks to withdraw money from mutual funds.

The daily average flow into liquid and liquid-plus schemes is usually Rs 15,000 crore. Some mutual fund players said Monday’s inflows were at record levels. “Inflows to our schemes were around Rs 7,000 crore — the highest ever,” said the investment head at a top-five fund house.

Another CEO of a fund house said today’s inflows were around 10 per cent of the scheme. Typically, liquid and liquid-plus schemes are short-term mutual funds of 91 and 120 days. Both banks and corporates invest in them.

Rates in the call money market also slipped to 5-7.15 per cent — the normal band in the last two months — from a high of 12 per cent on Friday. Borrowings from the Reserve Bank of India (RBI) fell today to Rs 70,000 crore, within the normal range of the past few months. On Friday morning, banks had borrowed Rs 1.3 lakh crore from the reverse-repo window.

The Coal India refund money made its way into the equity market today, also helping the benchmark indices register impressive gains. Institutional dealers across brokerages said foreign institutional investors (FIIs) increased their amount of buying on Monday after the blocked amount in their accounts was released.

The Bombay Stock Exchange Sensitive Index, or Sensex, rose by 323.29 points to close at 20,355.63. The broader 50-share Nifty of the National Stock Exchange gained 99.85 points, or 1.66 per cent, to settle at 6,117.55. According NSE’s provisional figures, FIIs were net buyers at Rs 712 crore on Monday. Domestic institutional investors continued to sell at Rs 71.3 crore.

Sources familiar with the developments said after the allotment of shares to institutional investors, FIIs will be left with a cash balance of Rs 1.13 lakh crore, which is even more than they have invested during this calendar year. The year-to-date cumulative FII inflows to the Indian market have been $25 billion (roughly Rs 1.1 lakh crore).

“CIL saw 770 applications in the institutional segment, of which nearly 600 belong to FIIs,” said an investment banker associated with the issue. “These funds are likely to invest a significant amount of the refund money in stock markets here,” he added.

Among the frontline stocks, ICICI Bank touched a new 52-week high of Rs 1,244 before closing at Rs 1,235.50, up 6.23 per cent. Suzlon Energy also gained over 6 per cent to close at Rs 58.80. Among the other Nifty constituents, Bharti Airtel, HDFC Bank, DLF, M&M, Ranbaxy Labs, L&T and ONGC all gained ground.

Last Friday, fund houses were faced with heavy redemption pressure when companies and banks pulled out money. Consequently, they had to pledge certificates of deposit of four-five days with yields of 12-14 per cent with cash-rich firms. Some banks also borrowed from RBI’s repo window at 6 per cent and lent money to fund houses.