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Contrarian investors

Aabhas Pandya

If you think mutual funds have pulled 500 points off the BSE Sensex since March 1, then you are mistaken. The numbers speak otherwise. A quick analysis of the daily purchase and selling reveals that domestic funds have been net buyers to a tune of Rs 2.68 billion between March 1 and March 24, 2000.

Equity funds have made gross purchases of Rs 21.40 billion, while there have been gross sales of Rs 18.72 billion. Further, equity funds have been a contrarian in the market and timed their buying and selling with the movement of the indices - buying heavily in a falling market and selling when prices are rising.

It is largely believed that mutual funds have been net sellers on the bourses in March since a string of equity funds have announced hefty dividends ranging from 60 per cent to 100 per cent. As such, these funds have been booking profits at specific counters to build reserves for the payout. In March alone, as many as 27 open-ended equity and balanced funds have declared dividend income and this list does not include tax planning funds, which carry a three-year lock-in.

Mutual funds have been in the markets with their bulging cash bags when the markets have dropped sharply. On March 3, for instance, when the markets were down by 150 points, equity funds poured a net investment of Rs 1.50 billion. Similarly, when the markets were down 114 points on March 2 due to post-budget blues, funds were net buyers to the tune of Rs 1.46 billion.

On March 9, when the BSE Sensex lost 182 points, fund managers were again cherry-picking their favourite stocks at lower valuations and pumped in Rs 610 million. On the other hand, the funds sold stocks worth (net) Rs 750 million on March 1 when the markets went up by 195 points a day after losing close to 300 points on the budget day on February 29.

However, on a few occasions, the funds went with the market mood and sold in a falling market, thereby adding to the bear pressure. On March 8, when the markets lost 80 points, funds sold stocks worth Rs 1.24 billion, their largest net selling for the month. One reason why funds have been net buyers during the month is the sharp inflows in equity funds; especially the technology funds launched by several asset management companies (AMCs). These funds have mobilised over Rs 20 billion between February and mid-March. They have been deploying these funds in a falling market, thereby lending some support to the falling share prices. However, at the same time, they have been quick to pounce upon any opportunity to book profits and build reserves for a healthy dividend payout.

Mutual funds: Drivers no more

Date	Purchase (Rs cr)	Sales (Rs cr)	Net investment (Rs cr)	Sensex	Sensex gain/loss (points)
1/3/2000	96.65	171.63	-74.98	5642.12	195
2/3/2000	294.26	148.09	146.17	5528.31	-113.81
3/3/2000	298.23	148.58	149.65	5378.27	-150.04
6/3/2000	131.20	203.97	-72.77	5520.69	142.42
7/3/2000	275.09	159.85	115.20	5589.85	69.16
8/3/2000	42.80	167.14	-124.34	5511.42	-78.43
9/3/2000	192.53	131.50	61.03	5328.79	-182.63
10/3/2000	175.40	88.57	86.83	5301.78	-27.01
13/3/2000	67.26	96.84	-29.58	5129.22	-172.56
14/3/2000	83.27	28.53	54.74	5175.71	46.49
15/3/2000	32.03	92.05	-60.02	5249.76	74.05
16/3/2000	125.49	71.37	54.12	5102.41	-147.35
21/3/2000	103.67	105.82	-2.15	5133.24	30.83
22/3/2000	66.94	56.25	10.69	5207.87	74.63
23/3/2000	83.20	77.66	5.54	5115.02	-92.85
24/3/2000	72.74	124	-51.26	5141.42	26.40

Source: Value Research

Mutual Funds

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