Equity MFs reduce cash holdings in June, cash-to-assets ratio falls to 12-month low

Mumbai, July 15 Equity mutual funds significantly reduced their cash holdings in the month of June, indicating a resurgence of market confidence, according to latest data.

The average cash-to-assets under management (AUM) ratio fell from 3.56 per cent in May to a 12-month low of 3.09 per cent last month, according to data from Prime MF Database.

In absolute terms, mutual funds invested almost Rs 15,000 crore more in stocks each month, bringing the total amount of money in all schemes down from Rs 1.65 lakh crore in May to Rs 1.5 lakh crore in June.

Approximately 62 per cent of active equity mutual funds decreased their cash holdings, up from 60 per cent the month before.

Following this, Motilal Oswal Mutual Fund reduced its cash holdings by over Rs 6,500 crore and halved its cash-on-hand ratio.

Additionally, PPFAS and Axis Mutual Fund reduced cash holdings by Rs 1,500 crore and Rs 2,300 crore, respectively.

Kotak Mahindra, HDFC, Franklin Templeton and Sundaram Mutual Fund were among the large asset managers that reduced their cash exposure, the Database said.

However, ICICI Prudential only slightly increased its overall ratio despite adding Rs 1,786 crore in cash. Meanwhile, a few AMCs walked against the trend. While PGIM India nearly doubled its cash reserves to Rs 1,110 crore, increasing its cash-to-AUM ratio to 5 per cent, SBI Mutual Fund increased its cash holdings by Rs 1,092 crore.

WhiteOak Capital, Mirae Asset, and Baroda BNP Paribas also raised their cash levels; these actions do not always portend a bear market.

In terms of investing, mutual funds increased their stock purchases dramatically, expanding their portfolios by 695 new stocks.

With 558 names generating net inflows of Rs 21,730 crore, small caps accounted for the majority of the additions.

Fresh purchases of mid-cap stocks totalled Rs 35,116 crore, with an emphasis on high-quality growth firms. Large caps received the largest allocation at Rs 40,775 crore, indicating a risk-adjusted deployment strategy, even though they made up only 8 per cent of the new additions, as per the data.

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