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Equity funds on a selling spree

Aabhas Pandya

In a situation when the BSE Sensex is slowly edging up, fund managers are playing the perfect contrarians in equity markets. With a 400-point rise in the Sensex since the beginning of 2001, equity funds have been booking profits and churning portfolios. Aggressive buying from foreign institutional investors (FIIs) has only facilitated the active selling by such funds. FIIs have poured over Rs 50 billion in the Indian equity markets since January 1.

In the current calendar (till February 5), mutual funds have sold equities worth Rs 11.93 billion with January accounting for net sales of Rs 9.24 billion. The last time mutual funds had sold so heavily was in February 2000, when they offloaded stocks worth Rs 10 billion. In fact, the selling in the current calendar far outstrips the net selling in calendar 2000, which was Rs 6.94 billion.

"We were primarily buying in December when the market had gone down to 3800 levels. Now, with a 10 per cent gain, we are booking profits and are looking to invest in suitable picks,'' said a fund manager at Kotak Mahindra Mutual Fund. "We are taking this opportunity to exit today's momentum stocks like those of PSU and cement companies and enter beaten-down stocks like those from the auto sector. Even some IT stocks are cheap at current levels,'' said an equity manager with another mutual fund.

Most fund managers believe that the market is not going to run away since the third quarter performance has been stable. "Most companies have done well but there is nothing outstanding as yet. We do not see the market moving up to the 5000 level. Thus, we are booking profits rather than latching on to existing holdings,'' said the fund manager at Kotak Mutual Fund.

While fund sources deny any redemption pressure, some selling has also come on account of close-end schemes, which are due for redemption in the first quarter of the current calendar year. Apart from UTI's MIP '96 and Master Equity Plan '91, SBI Mutual Fund's Magnum Equity-Linked Scheme '91 will be redeemed. The three funds manage a cumulative asset base of little under Rs 5 billion.

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