Are fund managers expecting more volatility?

The net inflows into the equity-dedicated mutual funds have slowed to a five-month low in the month of May 2020. The slowdown in gross flows is, however, a multi-year low. It is due to the lower redemption that the net inflows look respectable. Along with inflows, the redemption from MF schemes has also declined.

An interesting aspect of the data released by the asset management companies (AMCs) for the month of May 2020 is that they have increased the cash levels. At the aggregate level, the cash level has increased to nine-month high as a percentage of assets under management (AUM).  This has come to a situation when the net inflows are declining and the equity market is at its lowest level in the last three years. In these circumstances, the cash level should have declined.

This show that the fund managers are expecting increased volatility in the market going ahead and we may see some downward movement. This is the time when they might deploy the cash. Going by their holdings and transactions for the last three months ending May 2020, we see that banks and non-banking financial companies (NBFCs) sector is at a place from where they are exiting. Private bank’s weight has hit the 20-month low to 16.7 per cent at the end of May 2020, down from 19.7 per cent at the end of May 2019. The sector where they have been increasing their weightage is pharmaceutical and telecom. The weight of telecom has increased for the seventh successive month to hit an all-time high of 3.9 per cent at the end of May 2020.

On a sequential basis, the weights of consumer, telecom, automobiles, healthcare, cement, technology, metals and utilities increased, while that of private banks, NBFCs, PSU banks, oil and gas as well as retail moderated at the end of May on a sequential basis.