Unimpressed by the sharp rally in equity markets, many funds managers have started to book profits and move money into cash. Some believe higher cash is due to the continuous inflows into equity schemes while others say that, they are waiting for more clear signals that can push markets ahead in the days to come.
Funds such as UTI Midcap Fund, Franklin India Prima Fund and Pramerica Midcap Opportunities Fund are among those sitting on cash levels of 10-12% as on December 2014 according to the data from Value Research. Some schemes like Reliance Small Cap scheme and Kotak Emerging Equity scheme have moved money into debt in the range of 10%.
Sunil Singhania, CIO of equity investments at Reliance Asset Management Company says, “It’s a strategic call and nothing to do with the valuations of the market. We remain quite confident on Indian markets and we are waiting for the opportunity to increase our stake in equity going forward.” Reliance Small Cap fund which is one of the few funds which has given returns in excess of 100% in the last one year has equity allocation of 91.27% and remaining money in debt as on December 2014.
Among all the schemes many of the mid and small cap schemes have seen higher cash allocation compared to large cap funds. S&P BSE Small Cap index has given returns of 83% in the last one year and many feel valuations have stretched in the segment. However the big surprise among the all the schemes comes from Quantum Long-term Equity Fund, which has only 67% of total corpus in equity and remaining 33% in debt. Fund managers at Quantum say they have started slashing the equity exposure since last six months due to high valuations in several stocks.
Nilesh Shetty, associate fund manager of equity at Quantum Asset Management Company (AMC) says, “Our approach is more process driven and we don’t look at timing the market. We focus more on companies and less on markets and that is the reason we are not fully invested in market. Our sense is earnings will not match expectations built into valuations of these companies. Corporate India is still de-leveraging and banks are stressed because of high non performing assets (NPA), and we think earnings recovery could be gradual.” The aggressive approach of fund have also started reflecting in its performance with returns in line with markets at 49% in the last one year.
Anoop Bhaskar, head of equity at UTI AMC says that they have kept cash-only positions because of huge inflows into equity schemes. “ Keeping cash levels at 10-12% is not intentional. We receive huge cash inflows every month. One can argue that, some section of markets are overheated in terms of valuations, but there are still some pockets in mid and small cap segments which are available at decent valuations.”
Many fund managers are waiting for a correction and will look to enter the markets when valuations turn attractive.