Mutual funds, which have raised about Rs 20,000 crore (Rs 200 billion) through new fund offerings (NFOs) in the last three months, have remained net sellers in the market. But the trend is likely to be reversed as funds feel the valuations are attractive now.
A slew of funds, including Morgan Stanley ACE Fund, Birla Sun Life Pure Value Fund, Mirae Asset India Opportunities Fund and Standard Chartered Mid- and Small-Cap Fund closed recently. The NFOs of DSP ML Natural Resources and New Energy fund, which are currently open, close on March 27.
In March, mutual funds turned net sellers, selling equities worth Rs 935.9 crore (Rs 9.35 billion). In January and February this year, funds bought around Rs 183.5 crore (Rs 1.83 billion) and Rs 100 crore (Rs 1 billion) respectively.
But Madhu Kela, Head, equity investments, Reliance Mutual Fund, said the fund has started deploying money that it collected from the NFO.
"These are attractive levels to look at. We are very comfortable at these levels," he said. The fund house recently raised as much as Rs 5,660 crore (Rs 56.6 billion) through the Reliance Natural Resources Fund NFO that closed on January 30.
The BSE Sensex has fallen by more than 4,000 points or 21.5 per cent since January. The data on the Bombay Stock Exchange (BSE) website indicate that so far domestic institutions such as mutual funds, insurance companies and banks have largely stayed away from domestic markets
Domestic institutional investors (DIIs) have bought equities worth Rs 21,234.02 crore (Rs 212.34 billion) in 2008 compared to FIIs, who have sold equities worth Rs 35,742.3 crore (Rs 357.42 billion)
Typically, mutual funds launch NFOs to raise money since the mutual fund penetration in India is low. Consequently, the money that comes into an NFO is actually money coming from some other mutual fund.
"Very less money comes in as net new sales into a fund. Only the smart money comes into mutual funds at these levels in the market. Unfortunately, the smart money is limited," pointed a fund manager of a mutual fund that has raised money through an NFO in the last three months.
"Funds might sell some stocks based on redemption pressures that they are facing currently or redemption pressures that they are expecting. For us, it has been quite steady at the current market levels. We do not see too much downside for the markets from here," said Sandip Sabharwal, Chief Investment Officer, JM Mutual fund.
Most mutual funds expect redemptions on account of advance tax provisioning that corporate houses do at this time of the year.
