Mutual fund houses are sitting on a war chest of Rs 2 lakh crore to support the market at a time when foreign institutional investors (FIIs) have gone on a selling spree, said industry players.
This includes Rs 1.25 lakh crore of cash with open-end schemes and fresh inflows. Also, sitting on the sidelines is another significant tranche of Rs 60,000 crore to Rs 80,000 crore of balanced advantage funds (BAF) and multi-asset funds (MAF), if the markets were to go down further.
“Since these funds increase allocation to equities when markets fall and valuations become cheap, they may get good opportunities in the fall,” said the CEO of a fund house.
Currently, the total assets under management (AUM) of these schemes are at Rs 3 lakh crore. The CEO added that if the market goes down, these schemes will have to increase the equity portion from 50% to 80%, on average.
In September-end, mutual funds were sitting on Rs 1.8 lakh crore of cash. In October, however, as FIIs stepped up their selling, mutual funds invested heavily to stem the fall. So far, FIIs were net sellers of Rs 79,693 crore. At the same time, DIIs (including mutual funds) have put in Rs 97,091 crore.
Overall, the benchmark Nifty and Sensex have fallen over 5% (after Monday’s bounce back) since the beginning of the month. Broader markets have fared worse, with both mid-cap and small-cap indices falling over 7%.
However, fund managers continue to be bullish. “Given the steady flow of money through systematic investment plans (SIPS), we have enough firepower to deploy for quite some time,” said a CEO of another fund house.
The current situation is quite similar to FY22 and FY23, when FIIs were net sellers to the tune of Rs 1.3 lakh crore and Rs 44,000 crore, respectively. DIIs had stepped in both the years and bought shares of Rs 2.2 lakh crore and Rs 2.5 lakh crore, respectively. In FY24, both FIIs and DIIs put in over Rs 2 lakh crore each.
This financial year, though FIIs have turned net sellers in recent months, they continue to be net buyers of Rs 4,000 crore, whereas DIIs have invested over Rs 3.3 lakh crore.
Going forward, most fund managers believe that steady inflows will only add to their firepower. “If the SIP book continues to grow at the same run rate, which it has despite the recent fall, we will have another Rs 1.50 lakh crore handy in the coming six months,” added an equity fund manager.
Most believe both retail investors and high-net-worth individuals have been quite smart in the last few years. While they have not been shy about booking profits, they have also not stopped their SIPs and continued to regularly invest money in the market.
Mutual funds contribute over 80% of investments made by DII, said industry experts. The others include players like insurance companies, pension funds, and banks.