Equity MFs cut cash holdings in March, pumps funds in stocks post Budget

India's equity fund managers have adopted the 'buy on dips' strategy, using the weakness in the market to buy stocks.

After sitting on a cash pile of Rs 12,000 crore in the initial months of 2015 when stock indices were hitting all time highs, fund managers have used the weakness during March to pump in surplus cash amid robust inflows.

Against 4.2% of cash holdings in February, fund managers have reduced the cash proportion to 2.5% (or Rs 8,450 crore) in March - when the Sensex plunged 1,400 points or nearly 5%.

"Sitting on cash was not a directional but a tactical call as the Union Budget was approaching. Inflows in the equity segment has continued to be very strong. Post that there were opportunities across the sector and we chose to buy," said chief investment officer (CIO) of PSU bank- sponsored asset management company.

HDFC Mutual Fund - country's largest fund house with Rs 55,000 crore of assets under its equity segment, reduced its cash holding from 1.57% (Rs 898 crore) in January to a mere 0.59% (Rs 327 crore) in March.

Similarly, Reliance Mutual Fund, with Rs 44,400 crore of equity assets, reduced cash level to 1.32% (Rs 585 crore) from 3.28% (Rs 1,444 crore) during the same period. In line with the same, ICICI Prudential Mutual Fund cut cash holdings from as high as 6.7% to 3.4%.

Fund managers believe that India is the story to be in and need of the hour is to stay invested. Barring intermittent glitches, the markets are most likely to perform in the next 3-5 years, they say. 

According to S Naren, CIO of ICICI Prudential Mutual Fund, "We continue to believe that India is the best place to invest from a three years perspective. Though in the mid-term (two quarters) there could be challenges, things are looking up."

In the year 2014-15, net investment by fund managers in stocks was worth Rs 40,087 crore - almost equivalent to what they pumped altogether between FY04 and FY08. The total net inflows from investors in equity schemes (including ELSS) stood at Rs 71,000 crore as the key indices gained 25%.

Prashant Jain, CIO of HDFC Mutual Fund, sees the situation with a different perspective. According to him, "A popular observation about the markets is that they have run up nearly 25% in last one year. A more pertinent observation is that the markets are up only around 30% from the pre-Lehman levels over the last six years. Markets, thus, have sharply underperformed nominal GDP growth over the last six years, in spite of the sharp move in recent months. The growth prospects for the Indian economy are encouraging."

As on 31st March, the equity assets under management (AUM) was nearly Rs 3.5 lakh crore - making 30% of the overall industry's AUM.