The Hindu Business Line : MFs could invest only 50% of corpus raised

MUTUAL fund houses, who were outgunning each other to launch initial public offerings for various equity schemes in January and February, are yet to fully invest the corpus raised.

The first couple of months the year had some bumper IPOs with funds mopping up to Rs 2,000 crore.

Though the sums collected are the largest ever, the deployment of these is so far is incomplete with equity markets turning choppy and individual stocks, especially in the mid-cap segment, remaining high on valuations.

Fund mangers say that only 50-60 per cent of the IPO money has been invested so far, with the remaining parked as cash or in money market instruments.

To illustrate, mutual funds have collected close to Rs 6,000 crore through IPOs since the beginning of the year. In comparison, MFs' have bought equities worth only Rs 1,911 crore since January, according to information from the Securities and Exchange Board of India. This figure also includes trading by existing mutual funds over and above investments of IPO proceeds.

Fund managers say they face pressure of investing the proceeds early as the first net asset value of the fund is to be declared within 30 days of close of the IPO.

However, with equity markets ruling at all-time highs for the first two months this year, they have been very few entry opportunities.

"Even during the last week, when markets have been falling, individual stocks, especially good mid-cap stocks, have been selling at high prices," said a fund manager.

This has also led to net asset values of these funds fluctuating within a wide range on a week-to-week basis.

Outlook of the fund managers about the equity market is largely bleak till mid-April, when the earnings season starts. Until then, they see continued volatility. "This means that there would be certain trading sessions when we can take positions on stocks that are currently overvalued but may come into attractive price ranges. Until then, we can only wait and watch," said a fund manager of a recently launched multi capitalisation fund.

The problem has been made further acute by the sheer number of product launches this quarter, according to fund managers.

There are too many funds looking for too few entry points to the market now, they say.

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