MFs waiting for a fall to buy stocks increase exposure to Nifty futures

Fund managers of some large- and multi-cap schemes have been buying the Nifty futures in a bid to boost returns. A look at the factsheets of large fund houses shows that some schemes have added Nifty futures to the tune of 1-9 per cent in their portfolio as of November 2018.

Schemes such as ICICI Prudential Value Discovery, Axis Multicap, Axis Bluechip, ICICI Prudential Bluechip Fund, Kotak Standard Multicap and Kotak India Contra Fund held Nifty futures as part of their portfolio.

Fund managers attribute this to a number of reasons such as strong inflows into schemes towards the end of the month, short-term tactical play and as a tool to participate in the markets while they wait for price correction in stocks they wish to buy. “This is a short-term investment and a tactical play on markets,” says S Naren, chief investment officer, ICICI Prudential Mutual Fund.


This view also finds credence with Shreyash Devalkar, Senior Fund Manager, Axis Mutual Fund, which has Nifty futures in a couple of its schemes.

“A small allocation to index futures should be seen as a temporary arrangement that allows us as fund managers to maintain equity exposure against the cash that we are holding while we are evaluating specific stocks as more longer-term investment ideas for the fund.”

Fund managers said that many a time large amount of money flow into a scheme when a fund manager who has identified stocks is waiting for a price correction.

Harsha Upadhaya, CIO, Kotak Mutual Fund, said, “We get flows towards the end of the month and we don’t want to hold cash. Hence, we invest in Nifty futures so that we can participate in the market. Once we identify stocks, we cut our exposure to the Nifty.”

Distributors, however, are viewing this trend with a critical eye. Since fund managers are unable to generate alpha, they are resorting to this strategy.

They point out that fund managers have been adding Nifty futures to their portfolio because of lower impact cost and easy liquidity.

According to data from mutual funds data tracking agency Accord Fintech, only two schemes out of 32 in the large-cap category have outperformed their benchmarks in the last one year putting further pressure on fund managers to generate alpha.

Rupesh Bhansali, head-mutual funds, GEPL Capital, said, “Exposure to the Nifty instruments has clear advantages. Through Nifty, fund managers are hedging their portfolios. In times when fund managers are uncertain as to how the stocks they are invested in would perform, exposure to Nifty helps in tiding over this uncertainty.

Hence, fund managers are adding Nifty instruments due to lack of clarity on the direction of the broad markets.”