Equity MFs turn buyers

Even as the markets remain on a weak wicket hovering close to the lowest level in two years, equity mutual funds (MFs) have stepped up their investments by buying more in a lackluster environment.
After remaining net sellers for more than two months, equity MFs have turned active buyers, especially in the past week. Fund houses have made net investments (higher purchase of shares than sales) valued at Rs 1,542 crore in equities since November 21.This is higher than the net investments made in a single month during 2011 except for August when MFs invested more in equities in a steadily falling market.
With this, fund houses have made net investments of Rs 1,075 crore in equities during November (till 28th), data with market regulator Sebi showed. Incidentally, the sensex slumped to its lowest level in more than two years on November 23 amid concerns that high borrowing costs, weak rupee and the looming crisis in Europe would hit profits of companies.
"The panic in the markets (last week) was used as an opportunity to deploy money," says A Balasubramaniam, CEO, Birla Sun Life MF. "Equity funds are investing (now) as valuations are attractive," says Sankaran Naren, CIO, equities, ICICI Prudential MF. Valuations for companies on the Sensex, which has lost around 21% so far in 2011, are now at their lowest in nearly two years. Net investments by MFs in equities remain high as fund houses are also exiting stocks at a slower pace on the back of heightened market volatility and a decline in redemptions. They have sold equities worth Rs 8,080.8 crore (till November 28) even as redemptions or exits made by investors have come at Rs 3,100-3,200 crore a month in September and October.
Equity MFs have seen redemptions to the tune of Rs 4,200-4,500 crore a month for most of the year.
A decline in redemptions means less pressure on fund houses to sell stocks. FIIs net sold shares worth Rs 24,520 crore this year, BSE data showed. Domestic institutional investors, which include MFs, insurance firms and financial institutions, however compensated for the loss with net investments to the tune of Rs 27,080.6 crore during the period (till November 29).