Equity funds sitting on Rs 50,000-crore cash pile

Between January and August, equity schemes, including ELSS, have received inflows of Rs 81,000 cr, and balanced funds Rs 53,000 cr

Equity fund managers are sitting on a cash pile of over Rs 50,000 crore, say industry sources. Some even peg it at Rs 75,000 crore, considering the equity component of popular balanced funds.
 
Fund managers say cash as a percentage of the corpus for several of their schemes is now in the double digits as inflows into equity schemes have been consistently high while stock valuations soar.
 
Between January and August, equity schemes, including ELSS, have received inflows of Rs 81,000 crore, and balanced funds Rs 53,000 crore. If the equity portion of balanced funds is taken at 60 per cent, this amounts to Rs 32,000 crore.
 
The overall net cash inflow that must be deployed in the equity market is thus Rs 1,13,000 crore.
 
During these eight months, fund managers have invested Rs 70,000 crore in stocks and are sitting on Rs 43,000 crore cash. With an average monthly net inflow into equity schemes of Rs 14,000 crore, the cash pile may have comfortably crossed Rs 50,000 crore in September.
 

Illustration: Ajay Mohanty

“Deployment of cash is becoming a challenge as markets inch higher despite poor macro-economic factors. The priority is fast shifting to risk management,” says the chief investment officer of a fund house.
 
Kaustubh Belapurkar, director, fund research, at Morningstar India, says, “The fund manager’s job is becoming tougher. However, the markets keep throwing up stock opportunities and IPOs are another opportunity.”
 
“One must continue with systematic investment plans (SIPs), but a lump sum investment now is not advisable. Anybody entering the market at this juncture is unlikely to make serious money in the next few years,” says the chief investment officer.
 
Over the past year, nearly all equity categories, barring pharmaceuticals and IT funds, have made 12-27 per cent returns, but this trend may not last. Fund managers are focusing on lowering investors’ expectations. Some of them have gone to the extent of saying that the phase of high benchmark-beating returns is over.
 
Several recent IPOs have been subscribed heavily by funds.
 
Further, ICICI Lombard, SBI Life and GIC Re among others look promising to them.
 
Fund managers have also included nearly 40 lesser known stocks in their portfolios this year. Almost all of these are mid and small caps like SunTeck Realty, DFM Foods, Lux Industries, Gufic Biosciences, Arrow Greentech, Steel Strips Wheels and Pokarna.
 
“These are times when fund managers cannot afford to be reckless. The key is risk is managed well,” says Amit Nigam, equity head at Peerless Mutual Fund.
 
Total equity assets under management (AUM) are over Rs 7 lakh crore, a third of the mutual fund industry’ asset size of Rs 20 lakh crore.