Plagued By Mounting Redemption Pressure, Mutual Funds Offload Equities

New Delhi, Aug 26 | Updated: Aug 27 2004, 05:30am hrs
Mutual funds continue to reel under redemption pressure owing to which majority of the fund houses are offloading equities. Funds have been net sellers in the stock market in August so far after pulling out heavily from stocks in the previous two months.

During the current month (till August 24), funds have remained net sellers to the tune of Rs 142 crore in the stock market.

The fund activity in the stock market hit a nadir in August. Till August 24, funds have made purchases to the tune of Rs 1,948 crore and gross sales have been at Rs 2,090 crore. In June and July, funds were net sellers pulling out over Rs 259 crore and Rs 470 crore respectively.

Mutual funds share in total equity assets in the country has sharply declined from 20.37 per cent in June to 18.14 per cent in July. The mounting redemption pressure in equity oriented schemes is evident as investors pulled out Rs 1,026 crore (net outflow) in July. There has also been net redemptions in balanced funds.

Equity purchases by mutual fund has been on a decline since the past three months. After hitting a peak of Rs 48,572 crore in May, the highest in any month since January 2004, mutual fund gross purchases plunged almost 56 per cent to Rs 21,301 crore in June. Barring August, gross purchase in June was the lowest since June 2003.

In July, funds were seen increasing purchases in stocks, which increased to Rs 26,786 crore.

However, gross selling increased at a faster pace, rising to Rs 31,493 crore, giving a net redemption of Rs 470 crore during the month.

Stock market was hounded by political uncertainty in May and June followed by worries on monsoon. The prolonged bearishness in equity market has been aiding the outflows.

The month of July brought fresh bout of bad news for markets. Inflation raised its ugly head scaling past the 7.5 per cent mark. The global crude futures hit a record high of $49 per barrel in mid-August.