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Mutual funds turn buyers in new year
Mutual funds have emerged net buyers of equity in the year so far after being net sellers of equity continuously for seven months till December 2004, writes Girish Chadha.
Mutual funds have emerged net buyers of equity in the year so far after being net sellers of equity continuously for seven months till December 2004.
Mutual funds made gross purchases to the tune of Rs 2949.35 crore and gross sales of Rs 2389.12 crore, thus making net purchases of Rs 560.23 crore till January 24.
This contrasts sharply with mutual funds emerging net sellers in equity to the tune of Rs 1184 crore so far during this financial year. In the last quarter of 2004, MFs sold equity worth a whopping Rs 1473 crore.
The heavy buying in January equity market by mutual funds comes even as foreign institutional investors remained net sellers during most part of January so far. FIIs have reportedly pumped in close to $8.5 billion in the equity market during 2004.
Experts attribute the sudden rush of investment in equity market through the mutual funds route to largely corporate investment in search of dividend stripping options as well as successful initial public offers (IPO) of mutual funds.
Mutual funds usually see huge inflows just prior to records dates for dividends. And soon after the dividend warrant dates, there are equally large outlfows.
"The net buying by mutual funds is basically investors' money, raised through IPOs, that has come back to the market", said MF tracking firm Value Research's Dhirendra Kumar.
Several mutual funds came out with their IPOs in the recent past, including Tata Infrastructure Fund, Sundaram SMILE and Sahara Mid-Cap, which raised several hundred crore between them.
"In the absence of micro-level data, one could say that it may be corporate investment coming in the equity markets through the mutual funds route, especially through single investor schemes which are believed to have been extended beyond December 31, 2004", said Prime Database managing director Prithvi Haldea.
Market regulator Securities & Exchange Board of India (SEBI) had last year issued a directive to MFs to ensure that no single investor has more than 25 per cent share of the assets of the AMC.
SEBI had also set a floor for the minimum numbers of investors per scheme at 20. While new funds had to comply with the directive immediately, existing funds were given time till December 31, 2004 to comply.
Market sources say the investment by mutual funds could also be due to some buying interest due to attractive valuations. The stockmarket has been on a downward journey for the better part of January, with the Sensex having lost 450-500 points since it reached an all-time high in early January 2005.
MFs were sellers to the tune of Rs 355.91 crore in December, Rs 695.37 crore in November and Rs 421.88 in October 2004.
Experts attribute the large outflow from the equity market by the mutual funds to heavy profit-booking by investors.
"The selling during the last quarter was largely due to investors pulling out money from the market as the indices had been reaching new peaks almost every day", added Kumar.
