Mutual fund houses have bought large amounts of equity in the past three months, investing a net amount of ₹55,000 crore between January and March 2023, reported Business Standard.
The number is more than double the amount deployed in the preceding three months (October to December), signalling improved valuations and favourable economic indicators, it said.
The valuations, which had peaked in October 2021, returned to their long-term average in March 2023, as per the report.
The 12-month trailing price to earnings ratio (PE ratio) of Nifty50 declined to 21 last month from a high of 32 at the end of September 2021. Owing to the consistent buying, cash levels at certain fund houses declined last month, added the report.
“Equity market valuations are more reasonable today than in March last year. As a result, we have lowered the cash component across most of our schemes. Despite the prevailing global uncertainty, India is better placed, owing to robust corporate balance sheets, government's focus on creating long-term infrastructure and initiatives to support a revival in manufacturing,” Anish Tawakley, deputy chief investment officer, equity & head of research, ICICI Prudential AMC, was quoted as saying in the report.
Data shared by Nuvama Alternative & Quantitative Research shows that the average cash level with fund houses was 4.6 percent at the end of March with PPFAS MF having the highest cash component at 13 percent.
Compared to February-end data from a Motilal Oswal report, the cash with PPFAS MF is down 1 percent. In the case of PGIM MF, cash component has reduced from 11.5 percent to 6 percent.
Also, with equities turning attractive, managers of balanced advantage funds (BAF) shifted the allocation from debt to equities in the last few months.
ICICI Prudential BAF, which is the second biggest in the category, is one of the fund houses to do so.
At the end of March, the asset management company’s equity allocation stood at a 30-month high of 52 percent, after rising consistently since touching a low of 30.5 percent in November 2022.
BAF managed by Aditya Birla Sun Life MF has also increased the equity exposure to 54 percent in March 2023 from below 50 percent in September 2022.
In BAF, the money manager decides on the debt/equity allocation, based on market conditions. With the improvement in valuations, there are expectations of equity market seeing an upward momentum later this year.