Mutual funds fail to cash in as markets hit circuit breaker

By Chirag Madia

Dalal Street on Monday had one of its finest day, however, the Indian Mutual Fund (MF) industry could not benefit from this rise, as they could not buy because trade was halted for the day after benchmark indices breached 20% circuit breaker. However, it has forced many fund managers to rework their strategies. It is now expected that funds would start actively participating in the markets, utilising their cash levels.

Despite domestic markets surging by over 17% and reaching to 14K levels, officials from the fund houses say that, they will start deploying the cash in the markets, which they were holding in various schemes, as they feel this is the right time to enter the enter the equity markets. And with the markets remaining closed for large part of Monday, the Association of Mutual Funds in India (Amfi) asked the fund houses to declare Monday, a non-business day for equity and hybrid schemes as many scrips were not traded during the day. On Monday, the 30-share Sensex (^BSESN : 14213.73 -70.48) of Bombay Stock Exchange (BSE) closed the day at 14,284.21 points gaining 2,110.79 points or 17.34%. The broader SandP CNX Nifty (^NSEI : 4318.45 -4.7) of National Stock Exchange (NSE) added 651.50 points or 17.74% to end the day at 4,323.15 points.

Gopal Agrawal, head-equity at Mirae AMC said, "After the Congress led UPA coming back of power and equity bourses rising at this level, we think that people will start deploying the cash in the market. Now with UPA coming with clear majority, new government policies will be announced and in the coming days markets are likely to continue their upward journey." However, fund managers don't rule out that, in the long run global economy and inflows from the foreign institutional investors (FII) will shape up the domestic markets. An senior official from the leading broking house said, "The sudden surge in the markets were totally unexpected, we will start deploying the cash but only in the benchmark heavyweight as this upward rally does not change the earnings momentum path for the next few quarters. Similarly, the global environment is still in the process of limping back to normalcy."

Most of the fund managers were seen getting into emergency meetings to discuss the new development. "With the surge looking so strong on Monday there was a need to get together and rack our brains," he added.

Some MF players also stated that, cash will be deployed from the schemes which are holding cash of over 10%. Waqar Naqvi CEO of Taurus AMC said, "Since past few trading session we have slowly deployed our cash in the markets. In the coming days also we will continue deploying the cash in the markets. There are also strong chances that, markets are going to continue their rally and profit-booking will only take place after few weeks of trading." The trend that was observed in the markets was that overseas investors were net buyers and the domestic mutual funds were sellers in the past month.