Mutual Funds play it safe, refuse to get swayed by market rally

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This is a rally that should have sent investors flocking to the stock market. After all, the Sensex jumped nearly 39% in just two months.

However, with the benchmark market index shrinking to a third in the past few months, not many are willing to take the bait.

Mutual Fund managers are being as prudent as the retail investor and have attributed the dramatic rise in stock values to the inflow of foreign institutional investor money, which significantly increases their caution quotient. While Fund managers have started investing idle cash, they are also looking at the rally as an opportunity to book profits.

A Mutual Fund manager oversees the allocation of the pool of money invested in a particular mutual Fund scheme and is responsible for investing the money to attain the returns and risk level of the mutual Fund investors.

“Since the valuations are not attractive at these levels, we are taking stock-specific calls. While we have been deploying cash for quite some time now, we are also looking at opportunities to exit select stocks,” says SBI Mutual Funds CIO Navneet Munot.

Speaking on sustainability of the rally, Mr Munot adds, “The pace of the rally has come as a surprise, and historically, such sharp rallies do not sustain for long. While we are unlikely to revisit the October 2008 and March 2009 levels, the results of general elections and the global scenario need to be factored in.” The momentum is in favour of the market and is expected to sustain, at least, till the election results are declared, says Reliance Asset Management equity Fund manager Sunil Singhania.

Sharing this view, IDFC Mutual Fund vice-president (equities) Kenneth Andrade says, "The Indian market has reacted to its international counterparts and we are extra cautious at the moment. While we are fully invested as far as our large-cap portfolio is concerned, we are wary of our mid-cap portfolio and have reserved cash to meet liquidity pressures."

Kotak Asset Management vice-president (equities) Krishna Sanghavi said they have been deploying cash whenever opportunities arise. But they are not putting in cash aggressively as of now, he added.

Having burnt their fingers last time, Fund managers are taking care not to get carried away this time. “While some stocks are available at attractive valuations, this is not the time to aggressively add new positions,” says the Fund manager of a popular Fund house who did not wished to be named.

Source-Economic Times
May 2009

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