Volatile equity market conditions has made Indian equity fund managers resort to lesser portfolio churn in the first half of the current financial year. For the six month ending September 2011, top schemes of the country have churned portfolio on an average by 34% against 50% in the previous six month period.

Schemes such as HDFC Top 200, Reliance Growth, Franklin India Bluechip, Fidelity Equity and Sundaram Select Mid-cap schemes have seen lower portfolio turnover ratio in the first six months of FY 2011-12 compared to the last six months of the previous financial year.

Market participants said relatively lower churn was also due to higher cash levels which some schemes were sitting on. Satish Ramanathan, head-equity at Sundaram MF says, ?It was time to buy and hold rather than churn portfolio in a weak equity market condition. Also cash levels had increased in the range of 8-10% during the first six months and we had adopted a wait and watch policy, which resulted in low churn in our schemes.?

Franklin India Bluechip’s had a portfolio turnover ratio of 27% for the six month ended September 2011, which used to be 33% in March 2011. HDFC Top 200 had a turnover ratio of 20% in September, 2011 which was 27% during half year ended March, 2011. However there are few schemes like ICICI Prudential Dynamic and IDFC Premier Equity, which had its portfolio turnover ratio in the higher range of over 100% and 200% respectively.

The churn figures were relatively lower for Fidelity Equity (9%), Tata Equity PE (15%) and Reliance Growth (13%). The portfolio turnover ratio is calculated by taking the lesser of the annual purchases or sales (excluding cash) and dividing it by the average net assets of the fund. For instance, if a fund purchases stocks worth R50 crore and sells at R100 crore during a given year, the turnover ratio is arrived at by dividing the lesser of the two (in this case R50 crore of purchases) by the average fund assets (say R200 crore), which comes to 25%.

Deepak Chatterjee, MD and CEO at SBI MF says, ?The equity markets were unsteady during the first six months of the current financial year, but we as a fund house have a bottom-up approach to buying stocks. There is no point selling a stock when the long term prospectus remains strong.?