Mutual funds saw their cash pile declining by 25 per cent to Rs 15,000 crore (Rs 150 billion) at May-end, with the firming stock market providing them an opportunity to invest the money they were holding for several months.
"Fund houses felt they can participate in the rally as the market was heading towards the support zone of 15K level. MFs entered the market believing that the fundamentals are good," Taurus Mutual Fund Managing Director R K Gupta said.
According to the Mutual Fund Monthly Performance Report by Reliance [ Get Quote ] Money, the fund houses were sitting on a cash pile of Rs 15,074.27 crore (Rs 150.74 billion) at May-end against that of Rs 20,108.92 crore (Rs 201.08 billion) at the end of previous month.
Fund managers said that availability of stocks at cheap valuations renewed their interest in the secondary market.
Analysts feel by June-end, the cash levels of the fund houses would increase as they would now again hold back their investment plans to cash-in on the correction that is expected to come in the market post the Budget on July 6.
"July will be a period of consolidation. This month there would be some profit booking and the cash position would increase. Fund managers would adopt a wait and watch policy before deploying cash in future," Gupta added.
In May, FIIs invested a net Rs 20,117 crore (Rs 201.17 billion) in equities, while MFs made net purchases to the tune of Rs 2,291 crore (Rs 22.91 billion).
Reliance Mutual Fund's cash as a percentage of its total equity assets was at 15.55 per cent at May-end. The ratio was 19.86 per cent for ICICI [ Get Quote ] Prudential Asset Management, 10.35 per cent for UTI Mutual Fund and 5.58 per cent for HDFC [ Get Quote ] Mutual Fund, the report noted.
An analysis of the investment in various sectors by the fund houses showed that they have increased their portfolio allocation in May by increasing their investment limits.
The top five sectors held by MFs at May-end were banks, refineries, power equipment, realty and power.
The BSE benchmark index Sensex gained 28 per cent in May. Analysts believe that investors has started showing interest in equity schemes after the market has moved up substantially.
With increased inflows, the subscription is also increasing. According to domestic brokerage firm Sharekhan, fund houses mobilised gross inflow of Rs 4,796 crore (Rs 47.96 billion) from the sale of existing equity MF schemes in May 2009, the highest since March 2008. This is whopping 162 per cent more than what they had achieved in the previous month.
At the end of May, the combined average Assets Under Management of 35 fund houses in the country increased by 16 per cent to Rs 6,37,609.41 crore (Rs 6,376.09 billion), which analysts believe was mainly due to the recovery in equity markets and rise in investor enthusiasm.