Funds go on buying spree as cash holdings drop to five-year low

Mumbai: Money managers have slashed cash holdings in equity mutual fund portfolios to the lowest in five years, using recent declines in large private bank and IT stocks as an opportunity to put the money to work.

Cash holdings as a percentage of total equity assets under management (AUM) fell to ₹1.33 lakh crore, or 2.43% of total equity AUM of ₹54.92 lakh crore, in June, according to data from Accord Fintech compiled by ETIG Research.

As a proportion of total equity assets, this was the lowest level since November 2021, when cash holdings stood at 2.3%, or ₹43,997 crore, of total equity AUM of ₹19.15 lakh crore. Over the past five years, average cash holdings in equity portfolios have been 3.14%.

Parag Parikh Flexicap Fund, which was under the spot for the aggressive cash call, reduced its cash holding to 12% in June from 17.3% in April 2025. "We have been investing in companies that look attractive on a bottom-up basis," said Rajeev Thakkar, chief investment officer, PPFAS Mutual Fund. "A common theme has been low valuation driven by the market's reaction to near-term uncertainty and pessimism, ignoring the long-term track record and quality of these companies." Financial services companies, specifically private sector banks, natural gas-related companies and IT services have been in Thakkar's focus to deploy cash.

Typically, fund managers keep higher-than-normal cash when buying opportunities in the stock market are scarce. At the same time, most of them refrain from taking steep cash calls, fearing underperformance in the event of an unexpected run-up in the market.

India's stock market valuations have been at a premium to those of emerging markets on optimism around its growth prospects. But, since September 2024, a slowdown in corporate earnings made valuations untenable for foreign investors, resulting in a torrent of outflows from local stocks in the past 20 months. Their selling concentrated in blue chips resulted in the valuation of sectors such as private banks and IT falling below their long-term averages. As the West Asia conflict subsided temporarily, resulting in the market bouncing from lows, fund managers deployed their excess cash in some of the beaten-down stocks.

"We have focused on those areas wherein earnings were relatively resilient, particularly in an environment marked by elevated global uncertainty and uneven growth," said Trideep Bhattacharya, president and CIO-Equities, Edelweiss Mutual Fund.