What’s In, What’s Out – March 2010 !

Key observations

±       Mutual Fund industry witnessed a bumpy ride during the last quarter of the FY10. After reporting a 4.1% mom decline in January and a 2.7% mom growth in February, Indian Mutual Fund industry Average Asset under Management (AAUM) fell again by 4.3% mom in March. Industry AAUM stood at Rs7.5tn, a decrease of Rs338bn on a mom basis. Historically, March, being the last month of the fiscal, results in heavy redemption by corporates and financial institutions due to advance tax payments.

±       The top-10 fund houses cumulatively posted a de-growth of 3.8%mom in AAUM, but the fall was lower than the total industry decline. Among the top-10, only four fund houses were able to report a monthly AAUM growth. SBI Mutual Fund witnessed strong growth in March ‘10 and it sneaked into the seventh position among the private players replacing Kotak Mutual Fund. The other three gainers were UTI Mutual Fund (+1.1%), ICICI Prudential Mutual Fund (+0.6%) and Franklin Templeton Mutual Fund (+0.1%). Reliance Mutual Fund continued to hold its leadership position, but witnessed a decline of 4.6% mom in March ‘10. Pearless Mutual Fund made its debut last month and moved two position higher to 34^th position. It was also the highest AAUM gainer (in percentage terms) in March, by 150% mom.

±       In March, heavy redemptions were seen in the income fund category. Its share in the total AUM declined by 11% since last month. There was an outflow of Rs1,644bn in income fund category and it was mainly on the account of the pay-off for the advance tax by the banks and corporates. Equity funds category, which gained 600 bps in the total AUM pie, also witnessed an outflow of Rs20bn. Being the last month of tax planning, ELSS fund category saw decent inflows of Rs6.4bn in March ‘10 vis-à-vis Rs5.5bn in March ‘09, an increase of 17% yoy.

±       Mutual Fund players went overweight on the financial services and media sectors. Rural Electrification Corpn and DQ Entertainment were among the top-10 buys, as fund houses subscribed to their public offerings. The prospect of further de-regulation in the fertilizers sector has resulted into active buying by the fund houses during the month. Kotak MF and UTI MF went overweight on Chambal Fertilizers, which was among the top-5 additions. The two funds bought ~2.6mn of shares in March.

±       Since November 2008, for the first time in 16 months, mutual fund houses were net sellers in the debt category. Fund houses sold approximately Rs93.5bn of debt instruments in the month of March. They continued to be underweight on the equity market and offloaded equities worth Rs40.8bn in March ‘10. FIIs continued to be overweight in markets, buying equities and debt worth Rs199bn and Rs95bn in March ‘10.

±       Among the top 12 fund houses, the average cash holdings has reduced to 5% in March `10 vis-à-vis 6.9% in February `09. Eleven out of twelve fund houses hold less than 10% cash in their portfolio. ICICI Prudential continues to holds the highest cash at 10.2% among the top 12 fund houses. Reduction in cash levels was on account of huge dividend payout by the fund houses during the month. Franklin Templeton MF is the only fund house to increase cash holdings in real term in its equity schemes by Rs1.2bn.

Thanks,

Dewang K. Mehta

DENIP Consultants - www.denip.in

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