MFs take subprime crisis head on; FIIs shy away

Mutual Fund houses have pumped in huge funds at lower levels in the market during August when they were witnessing jitters in the wake of subprime crisis that dealt a body blow to stock markets across the globe, including the Indian markets.

Written by Markets Bureau

September 4, 2007 00:00 IST

Mutual Fund (MF) houses have pumped in huge funds at lower levels in the market during August when they were witnessing jitters in the wake of subprime crisis that dealt a body blow to stock markets across the globe, including the Indian markets.

Indian MFs were net buyers to the tune of Rs 4,093 crore in the month when the market was volatile and the 30-share Sensex was actually down 232 points or 1.4% as on August 31, at 15,550 points. Interestingly, foreign institutional investors (FIIs) were net sellers at Rs 7,770 crore (over$1.9 billion) during the month.

According to data released by the Securities and Exchange Board of India (Sebi), fund houses turned net buyers in August from being net buyers in earlier months.

Interestingly, MFs were net sellers at Rs 900 crore in July and marginally net buyers at Rs 700 crore in June.

According to a fund manager from a domestic fund house, MFs were sitting on resources mobilised through New Fund Offerings (NFOs). They did not invest much in June and preferred to book profits in July when the market was bullish.

The fund houses have decided to pump in money in a volatile market in August. The subprime mortgage crisis in US was responsible for the volatility in the global market. This has led to volatility in the domestic market too and MFs took advantage of it and hiked their exposure in equities at every dip.

In fact, the fund houses have taken a leaf from the bad experience they had in May meltdown last year. They were hit badly as they stayed invested in the dipping market when the equity markets shed 30% of its total value in less than a month?s time.

Contrary to equities, MFs have lowered their investments in debt market from a net investment of Rs 12,804 crore in July to Rs 4,359 crore in August.

Another fund manger said that fund houses were cautious in their exposure towards debt market due to the subprime mortgage crisis in the US. The market was expecting the subprime factor to have linkages in the domestic financial system too.

The MFs had invested a net of Rs 8,545 crore in June.

This article was first uploaded on September four, twenty seven, at zero minutes past twelve in the am.