With blood on the Street, fund houses turn buyers

Domestic mutual fund houses are buying heavily amidst the market turmoil.

With the benchmark indices seeing an erosion of 13 per cent since the last monetary policy review, fund managers have accelerated value-based buying across the board.

So far this month, they have bought shares worth Rs 1,584 crore (Rs 15.84 billion), according to figures available from the Securities and Exchange Board of India.

This is the highest net investment so far in a month ever since the entry load ban came into effect two years back.

In July 2009, the industry had seen a similarly high net investment of Rs 1,825 crore (Rs 18.25 billion).
   
"We believe the markets have had enough of a correction this year. This is an opportune time to pick good value stocks.

Though there may be a further correction of three-five per cent, there is probability of a rebound in equity markets," says N Sethuram, chief investment officer at Daiwa Asset Management (India).

The Sensex on Monday gained 1.24 per cent or 200 points to end at 16,341.70.

In the Sensex pack, 24 of the 30 stocks closed in the green.

The Sensex, down 20.3 per cent this year, dropped five per cent last week.

That extended its losses to 14 per cent in four straight weeks, the longest weekly losing streak since Lehman Brothers collapsed in September 2008.

The broader 50-share Nifty closed up 1.1 per cent, at 4,898.8 points.

In the broader market, there were 2.5 gainers for every loser.

According to provisional numbers, domestic institutional investors net bought shares worth Rs 143 crore (Rs 1.43 billion), even as their foreign counterparts net sold Indian shares worth Rs 786 crore (Rs 7.86 billion).

Major US indices were trading in the green till 2310 Hrs IST.

HOW THEY STACK UP
INDEX	Closing	% chg
AMERICAS*
NASDAQ	2,364.17	0.95
Dow Jones	10,931.20	1.05
EUROPE*
CAC 40 INDEX	3,051.36	1.14
FTSE 100 INDEX	5,095.30	1.08
DAX INDEX	5,473.78	-0.11
ASIA
BSE SENSEX	16,341.70	1.24
NIFTY	4,898.80	1.1
HANG SENG	19,486.87	0.45
TAIWAN TAIEX	7,312.59	-0.41
SHANGHAI SE	2,515.86	-0.73
NIKKEI 225	8,628.13	-1.04
KOSPI	1,710.70	-1.96
* At 2310  Hrs IST  Source: Bloomberg Data compiled by BS Research Bureau

Fund houses had taken a cash call amid global uncertainties, which led to higher cash holdings.

At the end of the June quarter, the top 10 fund houses were sitting on considerable cash.

In some cases, it was as high as 10 per cent, against the normal holding of three-five per cent.

Gopal Agrawal, CIO at Mirae Asset Global Investments (India), says, "Global economic turmoil is like a tsunami but we have to find value in it. Fund managers are choosing to deploy whatever cash is available. One cannot go defensive at such low levels.

There are several high-value stocks that have fallen to low levels and it makes sense to get into them with a long-term perspective."

Fund managers say it may not be prudent to take pure sectoral calls, which are likely to go wrong. For instance, explains a fund manager, RIL is at a very reasonable level in the oil & gas space.

"Similarly, Maruti Suzuki is one of the top bets in auto, a rate-sensitive sector. There are several stocks that have fallen drastically and re-rating has happened," says the fund manager, requesting anonymity.

"We are not going to see a repeat of 2008.

The available cash should be deployed in equities," says Sethuram. Industry analysts agree.

According to Dhruva Chatterji, senior analyst at Morningstar India, "Valuations are pretty reasonable and it is justifiable to buy stocks."

Even technical analysts across brokerages are of the view the benchmark indices are currently trading at strong support levels and some amount of value buying would emerge.

Three domestic entities, Edelweiss Financial Services, Angel Broking and Emkay Global Financial, expect the Nifty to gain around 6-7 per cent in the near term.

Angel and Edelweiss analysts are of the view the Nifty could test 5,200 in the coming days.

Though the fund industry is consistently witnessing erosion of assets, the only hope is inflows through the systematic investment route.

"Inflows through systematic investment plans are growing, which enables fund managers to invest," says Jiju Vidyadharan, head of Crisil Fund Services.