The Hindu Business Line : Mutual funds shifting focus to large-cap stocks, cash

Kolkata, Aug. 6 It’s back to the basics for fund managers. The latest gyrations in the stock market are prompting many of them to get closer to two critical elements: Large-cap stocks, which stand a relatively high chance of bouncing back when the current trend changes, and cash.

Fund houses indicate they are at the moment trying their hand at both, all of it with the hope of minimising the impact of the decline and staying prepared for a possible reversal. However, the object of such a strategy, they do admit, is not easy to achieve.

Mr Mihir Vora, Head of Fund Management – Equities, HSBC MF, felt some sections in the funds industry had been, before the decline started, indeed trying to change tack in favour of large-caps. “We too had attempted this in some of our funds… with the belief that large-caps may be among the first to regain the ground that stocks have now lost,” he said.

Funds have been steadily losing, a trend reflected in the latest crop of net asset values. While returns have been generally coming down, for the one-week period ending August 3, diversified equity funds have given a paltry 0.15 per cent, while the one-month figure stands at 0.94 per cent, according to Value Research.

“It makes sense to have large-cap stocks in your portfolio in trying circumstances, especially when you are somewhat risk-averse,” noted Mr Anup Maheshwari, Executive V-P and Head of Corporate Strategy, DSP Merrill Lynch MF. The volatile market has lately led some quarters to step up allocations to such stocks, he added.

As sources point out, carrying cash may also help fund houses in such a scenario. Some funds did have more than normal cash levels, at least so at the end of July, and it may now be possible for the fund managers concerned to pick up stocks at relatively attractive prices, it is felt.

“Fund managers need to deploy cash wisely. However, few will expect them to wait indefinitely for this. Most players will possibly want to do this in gradual, phased manner,” said a city-based financial planner who advises clients on mutual funds.

Mid-cap funds

Mid-cap funds, which have increased in number in recent years, are among the categories that have been hit hard, considering the sharp drop recorded by a wide range of mid-cap stocks.

According to distribution company Plexus Management, close-end mid-cap funds fell by 0.132 per cent for the week ended August 5. The BSE Mid-cap index, incidentally, dropped 0.104 per cent during this period. The index now stands at 6,552.93 points (August 6 closing).

The descending trend has already driven some mid-cap funds towards the very end of the returns charts – a few exceptions such as Birla Mid-cap notwithstanding. While the latter has given a high 61 per cent in the past one year, funds such as UTI Mid-cap and Tata Mid-cap have delivered a modest 29 per cent and 37 per cent respectively, according to Value Research.

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