Mutual fund managers are waiting for FIIs to sell

At a time when the mutual fund industry is struggling to restrain outflows in equity funds, Sunil Subramaniam, MD & CEO, Sundaram Asset Management Company, explains why NAVs are not at an all-time high level while Sensex and Nifty have peaked record highs. In this interview, he defends fund managers saying their long-term approach will soon start paying dividends. Edited excerpts.

The market is at an all-time high. When will the NAV of mutual funds reach all-time high?
Markets are at an all-time high because of that friendly genie from across the border -- the FII. Since April, they have brought in Rs 1,22,000 crore and mutual funds have sold Rs 35,000 crore. So I think the answer lies in that.

Mutual funds are closer to the ground. While there has been a set of redemptions from older investors, new fund offers have collected some money. Domestic GDP growth and the earnings have not been giving confidence, so mutual fund managers have been net sellers.


The second answer to the mutual fund question is the fact that FIIs chose to put money in two Gs - good stocks and good sectors. When every money goes chasing those stocks, their valuations go sky high. So mutual fund managers begin to wait for FIIs to sell.

The confidence has started to return now. While FII flows will continue, they will also broaden their perspective. This does not mean that all new money will go into new stocks, it means that there will be some profit booking in the existing set of polarised stocks they have bought. So as and when they sell those stocks, mutual funds will step in to buy and you will see a broader based rally. FIIs will buy more of large cap stocks.

So now a mutual fund manager’s expertise and his long-term approach will start to pay dividends. That has not happened now because a set of polarised stocks have got the benefit of FII flows and some of those stocks have gone beyond the limits that a mutual fund can buy.