As of July, cash as a proportion of assets under management (AUM) of equity-oriented schemes stood at ₹57,045 crore, significantly higher than the five-year average of ₹31,531 crore.
In relative terms, July’s figure of 4.03% cash level is higher than the five-year average of around 3.58%, and the two-year average of 3%, data from Anand Rathi Group shows.
The relatively high cash levels indicate that asset managers are not deploying funds aggressively despite steady inflows via systematic investment plans. While net inflows into equity schemes dipped 43% month-on-month in July, SIP inflows remained steady at ₹12,140 crore, enabling overall equity flows to remain in positive territory.
“AMCs are holding on to cash to deploy as and when required," said Feroze Azeez, deputy chief executive, Anand Rathi Wealth. “Inflows have been steady with consistency in SIP numbers, which implies that there is a positive sentiment in the market. However, these inflows are not being deployed aggressively."
The popularity of mutual funds’ equity investing through the SIP route and by HNI investors has acted as an effective counterweight to FII activity and brought some stability to the market. Between October and June, when foreign investors sold shares worth ₹2.3 trillion, domestic institutional investors (DIIs) absorbed their sales by buying shares worth ₹3 trillion, effectively cushioning the market fall. During the period, cash levels of AMCs slipped below the five-year average in many a month (see table).
Thanks to this absorption by domestic investors, the Nifty fell 18% from high to low, outperforming indices like the Dow, which fell 20%, and the Hang Seng, which plunged 30% over the same period.
In the recent past, DIIs have been booking profits even as FIIs have turned net buyers of shares. In August, DIIs sold shares worth ₹6,053 crore, even as FIIs invested ₹51,200 crore.
Deployment by domestic investors is being cited as creating a structural shift in the Indian stock market which provides a floor to a fall at times of global uncertainty—Dow fell 3% and Nasdaq 4% over the weekend after the Fed sounded a hawkish tone on interest rates.
“There is a floor to the market from ₹14 trillion of equity fund AUM," said Nilesh Shah, managing director and CEO of Kotak AMC. “We can bring down the current cash level from 4% to 0.5% in a cheap market, with about ₹50,000 crore being deployed from the cash held by AMCs in a falling market."
Amit Gupta, vice-president and fund manager at ICICI Securities PMS, said: “There is always a chance of volatility spiking. But given the robust flows through MF and direct investing, we can be reasonably sure of India’s continued outperformance. In the event of a global risk-off, we could risk re-testing the June lows."
