MFs incrementally adding more cash; total equity schemes cash at Rs 60k cr

Individual fund houses are sitting on more cash than others. There were at least five fund houses that held more than 5% cash as of May-end

The amount of cash that mutual funds (MFs) hold has been on the rise.

They held the equivalent of 1.9 per cent of equity assets in cash in June 2021, shows data from tracker primemfdatabase.com. This has since risen to 2.99 per cent as of May 2022. The total amount in cash is up from Rs 31,598 crore to Rs 59,886 crore in the same period (see chart 1).

The rise could also be a function of inflows, according to one financial services executive. He suggested that mutual funds could simply be getting more cash than they would have deployed, rather than actively seeking to sell portfolio stocks to ride out recent market volatility.

“I don’t think it’s an asset allocation call,” said the person.

Individual fund houses are sitting on more cash than others. There were at least five fund houses that held more than 5 per cent cash as of May-end. There were four such fund houses in May 2021-none of them had a double-digit cash holding, unlike now, with the top cash holding at 10.8 per cent for PPFAS Asset Management.

Rajeev Thakkar, chief investment officer, and director at PPFAS Asset Management said that the increased cash levels could be an outcome of inflows coming in towards the end of the month, or prices remaining above levels at which orders have been placed for execution. He added that he does not expect cash levels to significantly increase above current levels.

MFs were net buyers by an average of Rs 14,992 crore in the financial year 2021-22. They were net buyers by Rs 22,371 crore in April, the first month of the latest financial year, shows regulatory data.

They received Rs 12,286 crore in May through systematic investment plans (SIPs) which make automatic periodic monthly investments. This is higher than the Rs 11,863.09 crore seen in April, according to data from the industry body, the Association of Mutual Funds in India (Amfi). The number of such SIP accounts was at an all-time high of 54.8 million in May, showed AMFI data.

Unit-holders invested a total of Rs 18,529.43 crore in equity funds in May. This includes both SIP investments as well as other lump-sum contributions. Retail investors held around Rs 18.49 trillion in equity assets as of May.

The inflows have come despite a challenging time for the markets with a correction of nearly 20 per cent from its all-time highs in October. The S&P BSE Sensex has dropped more than 10,000 points from its peak to close at 51,360.42 on Friday. The index is a benchmark of 30 companies, counted amongst India’s largest. Its movements are seen to be broadly representative of how the market is doing.

The market's recent decline has come despite a reasonably robust earnings season.  Banks, which accounted for three out of the top five bets at the end of May, had improved profitability and asset quality; according to a June 6 note Earnings Wrap note from brokerage firm ICICI Direct authored by head of research Pankaj Pandey.

“Corporate earnings for January-March 2022 (Q4FY22) were satisfactory in the backdrop of extended geopolitical conflict, supply chain disruptions, especially on the logistics front, and rise in key commodity prices,” it said.

“The management commentary across businesses was positive on the demand outlook amid a pick-up in economic activity, revival in public, as well as private capex cycle, was wary of further input costs inflation resulting in broader price hikes and a tad soft margin trajectory,” it added.