Friday, October 23, 2009

Cash Level Of Equity Funds Lowest Since Jan ’08 Peak, Is The Liquidity Tap Drying Out?

  • After a swift rise in share prices since early March, cash available with equity mutual funds has fallen below 7 per cent of assets under management, a level last seen during the market peak in January 2008. Even till April end, equity fund managers were ca utious and held 14.35 per cent of their assets in cash. The scenario changed after the Congress-led alliance won a comfortable majority in general elections boosting investors’ confidence in political stability in the country. Between April 30 and September 30, cash available with 297 open-ended equity schemes declined from Rs 14,637.18 crore to Rs 9,675.15 crore, data available from Delhi-based mutual fund tracking firm Value Research showed. During this period, cash as a percentage of total equity assets declined from 14.35% to 6.25%. 
  • After witnessing heavy inflows in July and August, mutual funds lost favour last month as investors pulled out over Rs 1.44 lakh crore, the highest monthly outflow so far this fiscal. The combined net outflow from the 36 fund houses stood at Rs 1,44,327 crore in September, as per the Association of Mutual Funds in India (AMFI) data. At the end of September, investors pulled out money from the four major fund schemes -- income, equity, balance and liquid or money market. 
  • Domestic institutions had been pumping fresh money into the markets for the last four months putting in Rs 14,207 crore in total, unmindful of how FIIs behaved. Even in July when FIIs withdrew Rs 1,365 crore from the market, domestic institutions were investing and helped the Sensex close 8 per cent higher, by bringing in over Rs 5,800 crore. But the situation has changed in recent weeks. From the average Rs 4,000 crore brought in every month between June and August, domestic institutional investment in the market in September dipped to Rs 770 crore and turned to net sales in October. 
  • Retail investors haven’t participated in the market’s rally since March and have pulled out Rs 13,355 crore (net) between March and now. Even in the post election surge that took markets up in May, retail investors didn’t join in. In September they took Rs 4,285 crore out of the market and in October till date they have pulled out Rs 462 crore.
  • The mutual fund industry’s assets under management declined in September even as equity markets touched a 17-month high of 17,000 during the month. Profit booking by investors, the new no-entry load regime and redemption pressures from corporates and banks are exerting pressure on the mutual funds’ asset base. Mutual funds assets fell by almost one per cent during September, while the benchmark BSE Sensex rose by more than nine per cent. Of the 38 mutual fund houses, 21 of them reported a fall in their asset base, while the asset base of the rest increased. The average assets have dipped to Rs 7,42,919 crore in September compared with Rs 7,49,915 crore in August, according to the data released by Association of Mutual Funds in India.
  • "Mutual funds are sitting on whopping Rs 13,957.4-crore of cash, but fund managers are anticipating correction before deploying it in the market," Sharekhan Ltd's Mutual Fund analyst, Sapna Jhawar, told PTI but in my view if one more month of AUM fall is seen, it may be enough for taking away all the cash they have as redemption pressure may lead to rapid selling to generate cash.
  • Many believe October to be a cruel month for stocks as many of the biggest crash have happened in October only and by the end of this month we would come to know amount of redemption pressure on hedge funds industry as Sep 30 was deadline for them, this is the reason why we saw accentuated selling last October also. Not necessary that it will be repeated, but worth a caution! If new money is hard to come by, liquidity gets dried up and current rally has been fueled mostly by liquidity, but we have to remember that liquidity is one thing that is very fragile, it disappears at slightest symptom of fear also.
  • Domestic institutional investors have, for the first time after May, turned net sellers in the stock market this month. In the 13 trading sessions in October, domestic institutions have taken out over Rs 2,600 crore on a net basis. This is the largest single month withdrawal since January 2008. 

Domestic institutions turn cautious, Take out Rs 2,600 crore this month.

No comments: