Auto firms park over Rs 10,000 cr in MFs

Written by Rachit Vats | Yoosef K P | Mumbai | Updated: Oct 30 2014, 09:35am hrs
Mutual funds were the most-favoured destination for auto companies to park their excess fund in the last financial year. An analysis of the mutual fund investments by five auto companies that represent the sector in the Nifty basket shows that their investments jumped over four-fold in fiscal 2013-14 compared with the previous year.

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The net mutual fund investments by these five companies together went up by Rs 10,300 crore in FY14 against Rs 2,272 crore in FY13. Moreover, at Rs 30,196 crore, the cumulative investment made by these companies in mutual funds constitutes about 72% of their total current investment, as of March 2014.

In FY14, while Maruti Suzuki made a net investment of Rs 3,019 crore, more than double the funds it parked in the previous year, mutual fund investment of Bajaj Auto and M&M rose four-fold to Rs 4,512 crore and Rs 433 crore, respectively.

Generally, MF investments by the companies comprise fixed-maturity plans (FMPs) and liquid debt funds. Experts believe a slowdown in the capex cycle coupled with the tax benefit that was available to certain non-equity instruments till July 2014 were the key reasons for the higher investments in mutual funds by the companies.

In a research note last month, Bank of America Merrill Lynch noted that the capacity utilisation a precursor to additional capex across many industries, including commercial vehicle and passenger vehicle segments, was at a decade low in FY14.

According to a fund manager with a domestic mutual fund, the high interest among corporates towards debt schemes was due to the tax benefit that was available to such instruments.

Until the latest Union Budget addressed the taxation disparity between debt funds and fixed deposits, gains from debt funds held for a period of less than three years had an indexation benefit., he added. In a response to FE queries, Maruti Suzuki said that higher investment in FY14 was primarily due to shifting of funds from fixed deposits to mutual funds and net cash generation from operations.

For FY15, we have a sizeable capital expenditure plan, scaling up of investment in MFs depends on cash availability after meeting capital expenditure requirements read an e-mail response from Maruti.

Maruti, Tata Motors and Bajaj Auto automakers that account for 92% of the incremental net investment in mutual funds in FY14 boost a strong compounded annual growth of 24%, 54% and 81%, respectively, in their cash and equivalents in the last five years, show Bloomberg data. As per Hero Motocorp, which parked Rs 351 crore in mutual funds in FY14, the company makes investments on account of surplus cash reserves generated from operations.

Surplus cash is dependent on variables such as capex for the year, cash generation, market demand, brand building spends, dividend payouts and incremental working capital requirements. Going forward, we will take a call on such investments as and when we feel it necessary to deploy small amounts of our surplus cash." added the spokesperson in an e-mail response.