The Hindu Business Line : Equity MFs look to trim their cash positions

Rapidly tumbling stock prices and high volatility have prompted quite a few equity fund managers to stay on the sidelines of the market and hold sizeable cash positions in recent months. A rough calculation suggests that equity funds put together held a total cash position of Rs 28,000 crore as of end-September.

But with this week’s plunge taking the Sensex within sniffing distance of 10,000 points, do fund managers see reason to deploy all this cash? Business Line checked with a few fund houses that held significant cash in their portfolios to get their views. While most fund managers say that they would be indulging in some buying at current market levels, there are still doubts about whether the markets have bottomed out.

Mr A. Balasubramanian CIO, of Birla Sun Life Mutual Fund, said that volatility, rather than the house’s view on valuations, have kept cash positions in some of the Birla funds high.

“Some of the cash positions have been held against the derivative exposures taken by the respective funds. We also consciously kept cash positions (between 15 and 20 per cent) higher on account of unprecedented volatility, of a kind we’ve not seen before.”

Asked whether these funds would be looking to deploy their cash positions now, with the Sensex close to 10,000 levels, Mr Balasubramanian said, “We are already doing that. It will be very difficult to call the bottom and I believe the markets may even bounce back to more realistic levels (of 13,000-14,000), where they deserve to trade”.

On the sectors where he sees buying opportunities now, Mr Balasubramanian mentions telecom, FMCG and pharma sectors . The fund is also eyeing the fall in infrastructure stocks as an opportunity. “After the correction and given the likely peaking out of interest rates, infrastructure stocks may become quite attractive going forward,” he said.

Mr Sandip Sabharwal, CIO of JM Financial Asset Management, is also of the view that valuations are extremely attractive at these levels. “Holding a huge cash position does not make sense when valuations are at extremely low levels and the markets are in the process of forming a panic bottom. We have typically been fully invested in all equity funds,” he said. As he holds the view that interest rates may begin to soften, he is positive on rate sensitive sectors, with the exception of real estate.

Mr Satish Ramanathan, Head - Equity at Sundaram BNP Paribas Mutual Fund, also sees opportunities for “selective buying” in this market, but remains cautious about going all out to deploy cash.

“Today, stocks appear attractive on a historic basis, but on a prospective earnings basis, they may still be expensive. Indian companies are close to their peak profitability and hence there may be rounds of earnings disappointments. Earnings downgrades have started only recently, but typically last for 24 months.”

He continues to favour investing selectively in defensive sectors, keeping in the view that there may be further downside in the markets.

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