Cash-rich MFs missing in action

Despite the pile of cash with domestic mutual funds, there was hardly any buying support seen from domestic funds in Thursday's falling market.

Even though most fund houses have been raising money actively through new fund offerings to capitalise on the good retail appetite for equities thus far, fund managers have been rather cautious when it comes to investing.

"The level of conviction among domestic funds managers is very low currently. Especially after seeing stocks run up sharply in this bull run, domestic fund managers are a lot more cautious than foreign investors on Thursday," said Manish Kanchan, chief executive officer, Ambit Capital.

A large part of fund managers are value cautious players while markets currently are driven by momentum players who bet on market direction, not worrying as much about valuations.

"It takes very little money to move the market in either direction when the market is driven by momentum players," said Abhay Aima, country head -- private banking, HDFC Bank. That explains the precipitous fall on Thursday, Aima added.

"Since the market sentiment is changing now, we are not sure where this fall would stop. We would wait for a clear support to emerge before buying more in the market.

Also, if the market sentiment turns worse, one could see redemption which means fund managers have to maintain adequate cash levels in order to aver selling in falling markets, if at all" a fund manager with a leading fund house said.

Currently, domestic equity funds are sitting on about Rs 9,000-10,000 crore (Rs 90-100 billion) of cash. In the past three days, domestic funds made net purchases of Rs 1,321 crore (Rs 13.21 billion), though each day the buying has been lower than the previous day.

Dealers said fund managers were missing in action on Thursday.

Some amount of money collected through new fund offerings got deployed in the past two months since markets were fairly strong.

"Since market was rising very fast, fund managers had no choice but to deploy the new money quickly," said A Balasubramanium explaining the apparent lack of buying from mutual funds.

In April, domestic funds made net purchases of Rs 2,900 crore (Rs 29 billion), while in March, net purchases were even higher at Rs 4,500 crore (Rs 45 billion).