Cash levels vary between 10-12%: Birla Sun Life

A Balasubramanian, CIO, Birla Sun Life Mutual Fund, said the cash level has been varying between 10-12% across all schemes. “Even today we will be sitting on close to 10% cash. Most funds, which essentially focus on the underlying stock fundamentals, will continue to invest about 96% of the portfolio, with just about 4-5% staying in cash.”

Excerpts from CNBC-TV18’s exclusive interview with A Balasubramanian:

Q: What is your sense of capital goods and banking, the numbers from these two sectors have started pouring out, first BHEL, then BEML, and now Yes Bank?

A: Some of these sectors have their earnings expectations built up. Clearly, the beating down which has happened especially on the capital sector was more due to the industrial production numbers which has been coming lower. Also, the dynamics in terms of delay in execution, which was different a few quarters back and today is much different. These are some of the things which are now holding back the price movements.

At the same time, because of the expected slowdown in the global market, there is an element of doubt in terms of how will they be able to reach their earning targets in the coming years. If we can look at the bill to book kind of ratio, most of them are still sitting on huge amounts of order backlog, only the earnings will keep coming in from these companies, which could be a little more volatile, hence we are actually seeing some of the stocks trading at a lower multiple then what we have seen sometime back.

Today, the entire banking industry is available at attractive valuations, especially PSU banks. Stock price movements are not being driven by what kind of potential forex loss companies might have to take and the kind of impact that would have on their portfolios which they are maintaining on the industries. These are some of the things which are holding them back. On the basis of valuations, they are all trading at very attractive levels, but what has been driving the underlying price movements in the last few weeks is more of the other factors which are not necessarily fundamental in nature.

Q: What is the call on the banking space, are you over the next two months going to be changing your weightage on the sector?

A: As a fund house, the index guide for banks and NBFCs is close to about 20% as part of the Sensex. In our fund, we have assigned a weightage of about 8-10% with a combination of both public and private sector banks. Ultimately, investment is to be driven on the kind of asset allocations that you have and what are the kind of valuations at which you are buying. From a broad business perspective, most negatives in terms of credit offtake being lower, capital markets being weak, and some of the forex concerns which are now coming in are all getting priced in. The overall market today is not looking at sector allocation but at pure bottom up stock investing approach, which all of us have been advocating. That is where the focus is coming.

At the end of the day, the tolerance levels for volatility especially from the market as a whole is low. We as fund managers have to put our money wherever the conviction is high. We would be allocating 8-10% across all our portfolios.

Q: How have cash level positions changed now compared to about three-months back?

A: The cash level has been varying between 10-12% across all our schemes. Even today we will be sitting on close to 10% cash. Most funds, which essentially focus on the underlying stock fundamentals, will continue to invest about 96% of the portfolio, with just about 4-5% staying in cash. We feel the cash call at the end of the day would be taken only on those funds which are dynamically managed, keeping in mind the overall market outlook. You have to take some short positions in the market and thus increase the cash levels, Otherwise, in most funds we generally remain fully invested. We keep about 10-12% in cash so as to buy stocks at certain prices.

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