Domestic equity funds are holding unprecedented amounts of cash. At the end of August, diversified equity funds had over Rs 7,300 crore in cash and equivalents, which constituted almost 9.5 per cent of the Rs 77,400 crore that they manage. This was higher at almost Rs 8,000 crore last month (11 per cent of the AUM). But owing to a revival in the markets, some of it had been invested in August.
Although there have not been many new funds launched in the last 3-4 months (which generally attract a lot of money and contribute to the cash holdings), funds launched recently have not got the opportunity to deploy the amounts that they raised. For example, bulk of these cash holdings are contributed by Reliance Equity, the largest diversified equity fund. The fund has over Rs 1,600 crore (which constitutes over 30 per cent of the fund's assets) invested in call money markets. Some other new funds which are still waiting for the opportunity to enter the markets include Templeton India Equity Income and Sundaram BNP Paribas Rural India. All these funds had very successful NFOs but as the markets went sour subsequently, they are sitting with huge piles of cash.
Among the older funds, Sundaram BNP Paribas Select Midcap holds the maximum amount of cash (over Rs 300 crore). While many funds have seen their assets decline in the last few months, this fund's assets have actually doubled to cross Rs 1,000 crore. Another fund, which has been blessed with inflows is UTI Index Select Equity. It has witnessed a phenomenal rise of over 6.5 times in assets within a span of four months. A Rs 45-crore fund by the end of April, it is now within touching distance of Rs 300 crore.
As a result of this sharp rise, 35 per cent of its assets are currently in cash.
Apart from that, some of the older funds have reduced exposure to equities to negotiate the uncertain times in the aftermath of market collapse. For example, UTI Equity has turned defensive. It has sized up its cash holdings from 1.5 per cent in May to 22.50 per cent in August. Prudential ICICI Power has pruned its equity holdings and has 10 per cent of its assets parked in cash. Magnum Contra is another fund which has over 10 per cent of its assets (over Rs 130 crore in cash).
This also points to the fact that with the kind of cash resources they have at their disposal, domestic funds are well capable of fuelling the markets to newer highs.