Cash levels at equity mutual funds continue to remain high

Equity schemes have seen inflows of more than Rs 10,000 cr each in April and May

Cash levels at equity mutual funds (MFs) continue to remain high, amid stocks hovering near their record highs. Against Rs 36,000 crore of the cash component in April, May witnessed a slight rise in absolute cash levels to Rs 36,300 crore. In percentage terms, however, cash levels (as a percentage of total equity assets) fell eight basis points (bps). 

Notably, equity schemes have seen inflows of more than Rs 10,000 crore each in April and May. Flushed with liquidity, fund managers are facing difficulties in deploying the cash, as stock prices remain elevated. This has resulted in a sustained pile-up in cash at most fund houses. 

Though some of the fund houses invested more cash into stocks in May, it was not enough to reduce cash substantially.  For example, HDFC Mutual Fund brought its cash levels down by 40 bps in May compared with April. Likewise, Reliance Nippon MF reduced its cash level by 50 bps, while SBI Mutual Fund cut cash composition by 100 bps. 

ICICI Prudential MF and Birla Sun Life MF also increased cash positions by 50 bps and 70 bps, respectively.

Fund houses that cut cash positions include Axis Mutual Fund, DSP BlackRock MF and Kotak Mutual Fund. UTI Mutual Fund is the only fund house among the majors which has one of its lowest cash levels, at 2.6 per cent. 

Fund managers are hesitating to get into the mid-cap and small-cap space. Most of the money is chasing the large-cap names. However, with earnings flat for the past couple of years and implementation of the goods and services tax (GST) just a few days away, they are taking no chances. A majority of them expect some disruption due to the implementation of the GST, and see the pain last for one or two quarters. 

Meanwhile, fund houses are pushing for balanced funds — schemes that invest in part debt and part equity — on a large scale to investors. Within these funds, the ones with dynamic asset allocation have emerged the favourite among investors over the past year.