MF buying in January lowest in 10 months

Fund managers are cautious ahead of the Union Budget, amid high valuations

Equity fund managers were seen slowing their pace of investment in January, ahead of the Union Budget, even as stock prices rallied sharply on the back of huge foreign flow.

Mutual funds (MFs) had made a net investment of ~50.03 billion till January 25, their lowest monthly tally since February last year. It was also much below the average monthly investment of ~120 billion for this financial year.

Foreign investors, on the other hand, pumped in close to $2 billion (~13,000 crore) into domestic stocks, thanks to improvement in global risk appetite. The huge foreign portfolio investor flow saw the benchmark indices climb a little over five per cent in January.

Gopal Agrawal, chief investment officer (CIO)- equities at Tata Asset Management Company, says: "Some fund managers are reassessing their positions. Valuations in certain pockets have become uncomfortably high, which has led to this cautious stance."

Several top fund managers have raised concerns about valuations amid the lack of corporate earnings growth over several years. Veterans like Nilesh Shah, managing director of Kotak AMC and Mahesh Patil, CIO of Aditya Birla Sun Life MF, recently said they were cautious at this stage and advised investors to be oriented for the long term, not to come to the markets with a short-term view at the current times.

G Pradeepkumar, chief executive officer of Union MF, says: “With the Budget on February 1, there has been uncertainty and fund managers need clarity of views to take investment bets.”

Managers also told Business Standard the year could be highly volatile and investors should brace for this, after three years of gain. Some have even advised investors to redeem if the returns made are beyond their expectation.

Managers are becoming even more cautious on midcap and small- cap stocks. Most are recommending investment in large-cap oriented schemes or balanced funds which have a dynamic allocation of between debt and equity.

Some managers said redemptions were increasing and net inflow was taking a hit. Inflow data for January will be issued by the Association of Mutual Funds in India next week. In 2017, equity units worth ~1.9 trillion were redeemed. However, strong gross sales ensured net inflow of ~1.5 trillion.