The Hindu Business Line : Indices jump on last day of each quarter to prop up NAV

WITH institutional activity in the domestic equity market increasing in the last few years, institutional investors have taken a new way to show somewhat healthy portfolio by keeping the key indices in positive territory on the last trading day of each quarter.

A comparison of each quarter since 2003 shows that out of nine quarters which have passed, seven times key indices - BSE's Sensex and NSE's S&P CNX Nifty - closed in positive territory on the last trading day.

However, the trend of indices closing higher on the last trading day of each quarter is not so skewed if one were to compare the trend from 1996 onwards.

For instance, out of 37 quarters since 1996, the BSE Sensex and the NSE's Nifty index gained 20 times and fell 17 times on the last day of trading.

According to market players, this is mainly done to keep the net asset value (NAV) of the funds higher on the last day of each quarter. Based on the performance of each quarter the funds get more inflows and also the performance of fund managers is judged how their funds performed in each quarter.

They said, before 2003 institutional activity (both FIIs and Mutual Funds) in India was not very high and so this practice was not prevalent. But, after this, the inflows in the Indian equity market are much higher than seen in the previous years.

FIIs have invested more than $18 billion in Indian equity market since 2003. There has been inflows by local mutual funds also but their investment in miniscule compared to FIIs.

Several of the fund managers to whom Business Line spoke agreed that there is some buying on the last day of each quarter to keep the NAV higher, but this doesn't make much difference to the returns to the investors as the gains are marginal. "This is just to keep the NAV somewhat higher and nothing more," said a Fund Manager with a mutual fund.

Industry experts said this is done more for ranking of funds by various agencies and even a marginal lower return may keep a particular scheme out of ranking or in top 5 or 10 schemes.

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