Cash and carry

That sentiments on the Street have hit a nadir was evident when the markets ended CY11 with negative returns of 25%. But the nightmare is far from over if the rising cash levels of mutual funds are any indication. Over the past three months or so, open-ended diversified equity funds have raised their cash positions as slackening growth coupled with policy inertia took a toll on the markets. Nearly 19 diversified equity mutual funds have raised their cash position, as percentage of net assets, by 11-30%.

Funds with exposure to real estate and infrastructure segments, such as Tata Growing Economies Infrastructure Plan B and Tata Indo Global Infrastructure, have raised cash positions to 36.32% and 35.83%, respectively, as of November. The reasons are not hard to fathom. Implementation bottlenecks in the form of government delays and red tapism with respect to approvals, and capital scarcity have ensured that the projects in the pipeline never get on the ground. In real estate, the shameful scam of last year and rising price escalation have throttled the sector.

A closer look at Sundaram BNP Paribas Capex opportunities shows that of the total corpus of ₹450 crore, a whopping 49.3%, amounting to ₹221.85 crore, is held in cash. Explains Srividya Rajesh, fund manager, “Order-book growth of the companies we invest in has been declining. Corporates have been holding back on spending on capex. Infrastructure bottlenecks coupled with low GDP growth and policy inertia haven’t helped either and spending on both industrial and infrastructure capex is down by 50% compared with last fiscal. Also a decline in stock prices of the companies we invest in have compounded matters.”

She believes that more clarity is needed from the government if the corporates have to be enthused with confidence. “Of the $1 trillion announced for infrastructure spending in the 12th five-year plan, how much translates into reality will determine which way our cash position moves. But investors should be patient and adopt a long term view,” Rajesh adds.

Dhirendra Kumar of Value Research, which tracks the mutual fund space, believes the weakening macro fundamentals and the global crises are to blame. “The extreme volatility in the markets and policy inertia have prompted fund managers to take shelter in cash. Unless these things change for the better the situation is unlikely to change any time soon.”