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Mutuals keep faith in choppy market

Calcutta, May 23: Mutual funds are as good as their words. Throughout the carnage, they maintained that investors should not panic and it was a good time to invest since all stocks were available at the most compelling valuations.

Many sceptics have felt that the funds were saying this only to retain investors and to stem the redemption pressure, which eats away the chunk of assets under management. But the funds have emerged as contrarians and have figures to match.

The figures made available by the Securities and Exchange Board of India (Sebi) shows that in May alone (till May 20), mutual funds have been net purchasers of Rs 1,269.27 crore against Rs 219.34 crore net sales in April.

The highest net purchase in this month was made on May 14 — the day when the sensex crashed by 330 points. They bought shares worth Rs 400 crore on that day. Manic Monday, the day that made history on the stock markets, witnessed the funds making a net purchase of Rs 341.56 crore, the second-highest of this month.

The net investment of Rs 1,269.70 crore in May is only Rs 38.64 crore less than the total net investment by the funds in financial year 2003-04, which stood at Rs 1,307.91 crore.

UTI Mutual Fund chief investment officer A. K. Sridhar said, “There was no reason for us to lose faith in the market since there was nothing wrong with it fundamentally. It was just some technical factors to which the market reacted. And since the effect was across the board, valuation of all stocks became attractive and we picked up stocks across all sectors.”

“We recognised that the fall is unnatural and a market cannot be affected by a few rash statements by some politicians,” said Raghavendra Nath, head, strategy and business development.

The situation gave an opportunity to the fund managers to buy those stocks, which they wanted in their portfolios but did not want to buy at high valuations.

The frenzy in the market was corrected and ended up bringing some sense into the market. Since stock prices are driven by their underlying values, short-term fluctuations on the market should not scare investors, added Nath.

The buying spree of the mutual funds started from May 6 and continued till May 17.

However, the obvious redemption requests by nervous investors on the following days forced them to be net sellers on May 18 and May 19.

The buying phase renewed on May 20, with net purchase of Rs 50.03 crore.

According to Kotak Mutual Fund chief executive officer Ajay Bagga, the funds are maintaining cash reserves at around 15 per cent, much more than the normal level of about 5 per cent. This is in anticipation of the redemption requests, which may pour in from nervous investors. This increase in reserves is making it difficult for the fund managers to increase their exposure in the market.

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