Mutual funds intensify buying amid market turmoil

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Equity mutual fund (MF) managers stepped up buying in January despite a sharp correction in the markets. Last month, MFs net bought shares worth Rs 7,000 crore, the most since September, as benchmark indices fell to their lowest level in 20 months.

MF buying was seen tapering in the three months to December. Fund managers continued with their cautious stance during the beginning of last month. But they were seen accumulating shares as the 30-share Sensex slipped below the 25,000-mark.

Fund managers poured in a massive Rs 2,000 crore in stocks as the Sensex tested the 24,000 levels. This was at a time when their foreign counterparts took off over Rs 11,000 crore from stocks in January.

In the past, too, fund managers turned aggressive buyers after bouts of sharp correction, terming it a ‘buy on dips’ strategy. At one point of time, the indices had lost almost 9 per cent of their value in January.

S Naren, chief investment officer (CIO) of ICICI Prudential Mutual Fund, says, "The recent correction in the markets due to current selling by FIIs coupled with our belief that crude oil prices may bottom out in the near term presented us with a good buying opportunity in equities according to our investing framework."

Before this, in the quarter ending December, the average monthly net investment by equity fund managers were to the tune of Rs 4,700 crore against Rs 8,200 crore for the first half of FY16. This was despite the fact that overall net inflows from investors during the quarter was over Rs 16,000 crore against fund managers' net investment of Rs 14,000 crore, leading to a slight surge in cash levels in portfolios.

Interestingly, the uptick in buying momentum came at a time when industry executives are feeling the initial pinch of slowing down of investors' flows in the equity segment. It had also led to a slight rise in cash levels in the equity portfolio in recent months. Officials say that the cash buildup of the previous months may have been used to infuse funds in stocks during January.

Rajiv Shastri, chief executive officer (CEO) of Peerless Mutual Fund, says, "Net investment by fund managers was primarily driven by investors' flows and possibly the cash build-up in the previous month. Further, markets presented a good opportunity to invest."

Agreeing with this, Kaustubh Belapurkar, director (fund research) at Morningstar India, says, "The flows might have taken a hit in January. Fund managers may have used the cash lying in their portfolios to invest in the market. They went more for the large-cap stocks."

With the current rise in stock buying, fund managers have bought shares worth Rs 77,000 crore thus far in the current financial year. This phase of buying has happened during a time when the markets remained volatile with a downward bias.

The overall equity asset size of the equity segment of the country's mutual fund industry is about Rs 4 lakh crore.

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