The Hindu Business Line : MFs turn net sellers ahead of big IPOs

According to market analysts, mutual funds are facing redemption pressure as several unit holders are encashing their investments to reinvest in the PSU initial public offerings (IPOs) lined up over the next few weeks. Besides some MFs are also booking profit to participate in the IPOs.

A look at the trading pattern of the mutual funds shows that up to February 18, they have been net sellers to the tune of Rs 454.55 crore in the equity market and Rs 178.53 crore in the debt market.

In the first three trading sessions of this week, mutual funds were net sellers of equities worth Rs 290.43 crore.

Selling by several mutual funds was also seen on Thursday that led BSE Sensex to fall by 172 points.

"Though redemption of funds by retail investors is not significantly high, corporate and high net worth individuals are exiting some mutual fund schemes to invest in the major IPOs. Those funds that were fully invested in the last few months are freeing up some resources to participate in these offers," said Mr Ashim Syal, Chief Investment Officer, ING Vysya Mutual Fund.

In comparison, MFs were net buyers in the previous three months. In January they were net buyers in equities amounting to Rs 937.86 crore, in December they bought shares worth Rs 852.44 crore and in November they were net buyers of Rs 190.55 crore.

"There are expectations of money flowing from the secondary to the primary market. There would be profit-booking happening in funds and securities until the IPOs and elections are over," said Mr Paras Adenwala, Head - Equities, Birla Sun Life Mutual Fund.

In the debt market, for the first time in the current financial year, mutual funds have been net sellers.

"Cash reserves that were earlier maintained around 1.5-2 per cent in most funds will be raised to at least 2.5-3 per cent. The amount of flexibility required in fund management is higher under the current circumstances - considering the IPOs and the elections," according to Mr Adenwala. Liquidity to mop up the discounted PSU IPOs is paramount now, says a fund manager.

Brokers said some of the mutual funds have been selling shares of PSUs that are being divested by the Government in order to subscribe to them in the primary market at a slight discount to the market price.

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