MFs cut equity buys in July with Budget in focus

Mutual fund managers have slowed down purchases in Indian equities in July so far, a stark contrast to their aggressive buying streak in recent months, on account of caution ahead of the budget on July 23 and rich share valuations. According to Sebi data, mutual funds net bought shares worth ₹2,757 crore in July (till 18) as against the monthly average of ₹31,600 crore since January. These asset managers might be on course to make their lowest monthly equity purchases in over a year.

Money managers prefer to stay on the sidelines till further policy clarity in the budget or earnings growth is seen, despite record inflows in the mutual fund industry in June.

“We think there is some caution among DIIs (Domestic Institutional Investors) as the budget date nears, as the next direction of the market depends on whether or not the government policies continue with the same intensity as it was when we were not in a coalition government,” said Umeshkumar Mehta, chief investment officer, SAMCO MF.

The BJP-led National Democratic Alliance (NDA) government is set to present its budget on Tuesday.

“AMCs seem to be cautious before the budget, despite new flows of about ₹15,000 crore in the first half of July,” said Shweta Rajani, head – mutual funds at Anand Rathi Wealth. “While we expect the coalition government to continue with capex, social welfare may also be a major spend.” Purchases from mutual funds have been one of the key drivers of the stock market in the past three years. Record flows into equity schemes, including through monthly Systematic Investment Plans (SIP), have cushioned the market from some heavy bouts of selling by foreign investors. In July so far, as mutual fund buying into equities slowed, foreign investors have pumped over ₹29,000 crore into stocks here. This is one of the highest monthly purchases by these investors this year.