Most MFs want to use correction to reallocate cash to large-caps

The ongoing correction in the market could be a good time to increase exposure to equities, feel domestic fund managers. The cash level in most-diversified equity schemes is below 5% on an average, which, fund managers feel, is neither too high nor too low.

As on April 30, ’10, about 4.7% of the total equity assets under management (AUM) of Rs 2-lakh crore was held in cash, with the balance having been fully deployed in shares.

With most fund houses sufficiently invested in equities, fund managers are looking at lowering volatility in their portfolios by re-allocating cash from certain small-, and mid-cap stocks to large-caps, which appear reasonably valued, after the recent market correction.

“The market has witnessed significant correction, especially in the metals and telecom sectors. However, domestic driven companies continue to hold reasonably firm,” said A Balasubramanian, chief executive officer, Birla Sun Life Asset Management. He says he would be a buyer at every decline in share prices.

“The crisis in Europe will continue to impact sentiment in both the equity and the debt market; while the market will fluctuate in the short term, this is an opportunity for long-term investors,” he said.

There are others, who hold an opposite view. Sankaran Naren, chief investment officer at ICICI Prudential Asset Management, is one of them.

Mr Naren, who chose a conservative approach to shares over the past few months, is sitting on relatively higher cash levels compared to his peers. He feels that at 16-17 times one-year forward earnings, most stocks are not exactly cheap.

“While the market has corrected sharply, valuations are not yet cheap. India Inc is doing well and corrections in crude prices will benefit the Indian economy as it will lower inflation. We are watching the crude prices closely and if the same corrects further we’ll possibly look at increasing exposure in equities,” Mr Naren said.

Despite the global volatility, fund managers are optimistic on the domestic growth story, especially as the fiscal position has begun to improve. Moreover, anticipating a good monsoon, food inflation is expected to soften.
“We are extremely positive on the domestic growth story and are definitely buyers in this market,” says Aniket Inamdar, CIO, Deutsche Asset Management.

“While we are following a stock rather than sector-specific approach, we feel that investors can seek buying opportunity in some commodities, natural resources, capital goods, engineering and infrastructure.”