Mutual funds that were holding around 8-10 percent cash level in their equity portfolio are likely to purchase shares of companies in banking and financial services, information technology, pharmaceuticals
Domestic fund managers are capitalising on the market fall and buying shares as they feel the valuations have become attractive after a sharp correction in the domestic stock market.
Mutual funds that were holding around 8-10 percent of the total AUM as cash in their equity portfolio are likely to purchase shares of companies in banking and financial services, information technology, pharmaceuticals, and media shares, fund managers said.
Normally, most fund managers prefer to keep around 4-5 percent of the AUM as cash for meeting liquidity requirements in case of a redemption.
The S&P BSE Sensex lost more than 2,400 points, or 6.2 percent, in September — this is the worst fall in the month of September since 2008. In September 2008, Sensex fell by about 10 percent.
Trade war woes, rising global crude oil price which breached $83 per barrel level, rupee depreciation against USD at a record level near Rs 73/$, liquidity concerns in NBFCs, hike in interest rates by US Fed rate, and rising concerns around weak macros are some of the factors which took a toll on markets.
This month too, bears have not loosened their grip on Dalal Street as the benchmark indices remained under heavy selling pressure on macro factors like weakening rupee and rising crude oil prices.
The 30-share BSE Sensex fell 632.82 points or 1.76 percent to 35,342.81 and the 50-share NSE Nifty slipped 198.40 points or 1.83 percent to 10,659.90. About three shares declined for every share rising on the BSE.
"We are definitely buying in the market fall. We are buying good franchise companies there were good bets but valuations were expensive which have now become cheap because of the fall, said Anand Shah, Deputy Chief Executive Officer and Head-Investments, BNP Paribas Mutual Fund.
Fund managers hinted that they are picking up shares of non-banking financial companies (NBFCs), which have good franchise, distribution network, treasury management, asset liability management (ALM) management.
Concurring with Shah’s view Viral Berawala, Chief Investment Officer at Essel Mutual Fund added, “We are also doing some incremental buying in the current fall. We are buying sectors which are insulated from the current risk of crude and rupee like media and export-oriented stocks,”
Market view, sector bets
Domestic equity fund managers are expecting the rupee to touch 75 per dollar if crude prices continue to inch higher.
Today, oil prices fell from four-year highs reached the previous session, pressured by rising US inventories and after sources said Russia and Saudi Arabia struck a private deal in September to raise crude output.
Brent crude oil futures were trading at $85.85 per barrel, down 44 cents, or 0.5 percent, from their last close.
A weak rupee is expected to benefit the export-oriented sectors like information technology and pharma, which is prompting fund managers to invest in these sectors.
According to Shah of BNP Paribas Mutual Fund, the business headwinds, which IT and pharma companies faced in 2016-2017 are now weakening and there has been recovery in business for both these sector. Also the rupee depreciation will benefit the underlined stocks in the sector.
Fund managers also pointed out that auto stocks, both four-wheeler and two-wheeler space, will face some heat as growth numbers for NBFCs will come down as the lending activity is likely to take a back seat.
On rupee levels, Berawala said, “Rupee would continue to remain volatile due to rising crude leading to high cad deficit. This is further accentuated by global trade war between US and China and OMC (Oil marketing companies) buying dollars to hedge their oil imports. Rupee touching 75 to a dollar is possible if crude continues to inch higher.”
On Oct 3, the rupee breached the psychologically crucial 73 per dollar mark and closed at a fresh record low of 73.34 per US dollar.
So far in the current calendar year, the rupee has depreciated close to 13 percent against the dollar and is currently the worst performing Asian currency.
A weak rupee increases the upside risks to inflation by making imports more expensive.According to RBI estimates, a 5 percent depreciation in the rupee could add around 20 basis points to the headline inflation rate based on the consumer price index.Not sure which mutual funds to buy? Download moneycontrol transact app to get personalised investment recommendations.