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Funds Stash Cash

The industry is hoarding cash as market sentiment has dampened

Even after the tepid market month of June, when Sensex dropped by 0.8 per cent, July witnessed some positive vibes from the market which surged 8.11 per cent despite worries of economic revival on general expectations that the monsoon was going to be deficient – a key to the country’s domestic-demand-led economy.

With expectations of a pause in the market rally gaining momentum, not surprisingly, fund houses thought it to be an opportune moment to increase their cash (we have included debt also) positions in their equity schemes. As such, for the month of July, fund houses were sitting on a cash pile of Rs 15,000 crore (all open-end equity schemes), which is a 7 per cent jump from last month’s total of Rs 14,165 crore.

Just before the start of the market rally in early March this year, fund houses were sitting on a cash pile of Rs17,377 crore in February 2009. However, it reduced to Rs 16,339 crore in March and was maintained at almost this level due to the uncertainties of election results. But since elections results handed a strong majority to one party, thereby precluding the chance of a coalition government which would have promoted negative sentiment since decision-making on all crucial issues would get postponed indefinitely, the fund industry reduced their positions in cash and debt to Rs 13,986 crore in May.

Amongst the top fund houses that have increased their cash & debt positions rise are Reliance Mutual Fund, which has upped its from Rs 4,462 crore in June to Rs 5,696 crore in July, while ICICI Prudential too did not lag behind in increasing its cash position, taking it to Rs 1,662 crore in comparison to Rs 1,282 crore. 

ICICI Prudential, though, was late in reducing its cash positions, in fact in May it actually increased to around Rs 2,000 crore, highest since last July.

However, there were some funds that did not believe in holding onto cash. Among the fund houses which decreased their cash pile were Franklin Templeton to Rs 555 crore in July from Rs 819 crore last month. IDFC too registered a decrease in its cash position as it stood at Rs 372 crore in July in comparison to Rs 508 crore in June.