High on cash, MFs can support market in near term, says Goldman Sachs

Mutual funds (MFs) can offer support to the equity market in the near-term, considering the high cash levels, Goldman Sachs has said.

In its report, the financial services firm has pegged the cash with top 200 active equity schemes at 4.2 per cent, slightly higher than the long-term average of 4.1 per cent.

According to the report, these schemes together manage assets worth $6.7 billion. "Across mandates, we note that small and midcap mandates hold high cash levels at 5-7% of AUM (assets under management), while largecap schemes have 3-4% cash allocations. We think domestic equity funds, sitting on high cash levels, could continue to support markets in the near term," the report noted.

In recent years, MFs have supported the market during phases of sell-off by foreign portfolio investors (FPIs). In the 2022 calendar year, MFs pumped in a net of Rs 1.8 trillion into equities even as FPIs pulled out a net of Rs 1.2 trillion from the Indian market.

MF deployment into the equity market had been subdued in the first four months of the 2023-24 financial year but picked up in August amid a sharp rise in net inflows from investors.

The report noted that the monthly flows into domestic equity MF schemes jumped 167 per cent in August, to a 5-month high of Rs 20,245 crore. Smallcap and midcap schemes continued to see the largest inflows, receiving a third of the total net inflows, the report noted.

"Looking across market cap mandates, we note that the AUM share of small and midcap funds has been increasing at the expense of largecap funds. In the last four years, small & midcap funds’ share of the overall equity mutual funds’ AUM has risen from 16 per cent to 23 per cent, while largecap funds’ share has dipped from 19 per cent to 14 per cent," it added.