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Kothari Pioneer's bet on cash

Aabhas Pandya

It pays to be in cash when the markets are down. The equity funds of Kothari Pioneer Mutual Fund are holding Rs 600 crore in cash (as on March 16, 2000), which is about 20 per cent of its total equity portfolio. The fund says this is a golden opportunity to pick up quality stocks at cheap valuations. However, the other side of the story is that the 80 per cent of the invested portfolio of which a large part is in infotech stocks is dwindling.

The sizeable cash position is mainly on account of the recently concluded highly successful launch of Kothari Pioneer's Internet Opportunity Fund which mopped up Rs 525 crore. Similarly, the growth fund from Sundaram Newton holds around 27.43 per cent of its portfolio or close to Rs 9 crore in cash as on March 16, 2000. Sundaram Growth Fund can also go for bargain hunting on the bourses with its cash component.

Open-end equity funds normally have around 5-7 per cent of their portfolio in cash/money markets to take care of redemption pressure. However, a higher cash component could be on account of two factors - fresh inflows and selling by the fund manager in some counters, which have appreciated quite sharply and could come down in the near future or if the scrips have achieved the price target set by the fund manager.

With around 20 per cent in cash, "We see the current downturn in stocks as a buying opportunity and intend to get invested in a phased manner,'' says Kothari Pioneer in its fortnightly report. The fund management opines that during the fortnight beginning March 1, non-technology sectors have recovered some lost ground with sizeable selling in technology stocks which had run up sharply. "This is a trend that is happening worldwide as investors rebalance their portfolios to scale down exposure to 'new economy' stocks and add the 'value' segment to their portfolios,'' the report adds.

While technology stocks continue to receive hammering on the bourses, Kothari Pioneer sees a further correction in view of the steep valuations. The fund management holds the view that stocks of second-rung companies will be hit harder than the top bracket companies. Besides, it sees greater value and lower downside risk in well-managed, highly productive companies in traditional industries such as auto, refining, metals.

The Internet Opportunities Fund from Kothari Pioneer has started investing in infotech companies, convergence plays and traditional brick-and-mortar companies. The fund will go open-ended on March 29, 2000. Although technology stocks have been under sustained selling pressure, they also have the potential to be back in the reckoning in no time. In the event of a fresh round of buying, the net asset value of Internet Opportunities Fund will open at a significant premium to the offer price of Rs 10.

Source: Value Research

Mutual Funds

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