Active equity mutual funds' cash holdings top May 2023 highs

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This shows that mutual funds were engaged in buying opportunities at lower levels, but were still keeping some of the powder dry for future buying.

Data further showed that the overall cash holdings as a percentage of the industry AUM rose to 5.64 percent or Rs 3.77 lakh crore at the end of October. This figure includes debt, hybrid, equity, commodity, overseas and passive fund categories.

At Rs 3.77 lakh crore, the mutual fund industry’s overall cash holding was highest since February 2022, when it was Rs 4.19 lakh crore.

The rise in cash holdings by mutual fund houses has come amid weakness in equity markets. Indian indices ended lower for the sixth consecutive session on November 14, with Nifty below 23,550. Sensex fell 0.14 percent to 77,580.31.

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Selling in Indian equity markets over the past one-and-a-half months has largely been done by foreign institutional investors (FIIs) while domestic institutional investors (DIIs), especially mutual funds, have been on the buying side.

“As a percentage, the cash component keeps moving even if funds don't do anything. Let us say if my cash is 10 percent and stocks are 90 percent, and if stocks fall by 10 percent, which is what Nifty has done, then the stock value falls, but the cash remains where it was. However, as a percentage, it may look higher,” said Rajeev Thakkar, Chief Investment Officer, PPFAS Mutual Fund.

Experts also believe that retail investors have a clear intent to deploy more cash into the equity markets while institutions have been trying to play it smart.

Equity fund inflows surged 22 percent on a month-on-month (MoM) to Rs 41,887 crore in October. At the same time, investments into mutual funds via monthly systematic investment plans (SIPs) topped the Rs 25,000-crore mark for the first time as investors increased their bets amid the bearish market trend during the month.

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“Retail is committing a lot of capital, but institutions want to hold on to some more dry powder before they deploy,” said Nirav Karkera, Head of Research at Fisdom. Karkera believes that apart from cash holding, a significant deployment is happening with the residual funds.

“While the cash level is still rising, ex of cash, the net deployable amount in hands of institutions is also growing at a faster pace than the pace at which cash levels are growing,” he added.

As per the latest report by Motilal Oswal Financial Services, October saw notable changes in the sector and stock allocation of funds.

On a monthly basis, the weights of Banks (Private & PSU), Capital Goods, Healthcare, Technology, and Cement increased, while those of Oil & Gas, Consumer Durables, Automobiles, Consumer, NBFCs, Utilities, Retail, Telecom, and Metals moderated.

Meanwhile, when it comes to the cash component, data sourced from Prime Database MF showed that SBI Mutual Fund, which has the biggest active equity book, had the highest cash allocation at Rs 23,146 crore as of October end. ICICI Prudential MF came in next at Rs 20,469 crore and HDFC MF had Rs 18,956 worth of cash holdings in its active equity funds.

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Among major fund houses, PPFAS MF active funds were holding 15.46 percent, or Rs 13,255 crore, cash holdings as a percentage of scheme category AUM. Further active equity funds of Quant MF were holding cash holdings of Rs 6,149 crore, or 7 percent as a percentage of scheme category AUM.