Indian Mutual Funds’ Cash Buffer Shrinks To 16-Month Low After Market Fall
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Indian mutual fund houses reduced their cash holdings by 12% in March to buy stocks at lower levels. However, global energy markets still remain uncertain, and a further decline in stock prices cannot be ruled out.
While geopolitical jitters and a spike in oil prices sent the Indian markets into a tailspin this March, mutual fund managers saw an opening. Instead of sitting on the sidelines, nearly 60% of domestic fund houses aggressively deployed their "dry powder," cutting overall cash holdings to a 16-month low.
According to latest ACE MF data, cash levels across the industry plummeted to ₹1.86 lakh crore in March, the lowest point since December 2024. This represents a 12% drop to roughly ₹24,319 crore.
The "Buying The Dip" Strategy
The market correction was deep. The Sensex and Nifty fell over 11.5%, and more than half of listed stocks touched one-year lows. Fund managers stepped in quickly to buy the dip.
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Cash as percentage of AUM: Industry-wide cash reserves dropped to 4.73% of assets under management (AUM), down from 4.86% in February and a much higher 5.76% this time last year.
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Macro Pressure: The selloff was driven by the US-Iran conflict and Brent crude crossing $100. These developments sparked fears of a wider trade deficit and persistent inflation.
Who Spent The Most?
Several of India's largest asset management companies (AMCs) slashed their liquidity to scoop up shares at a discount.
SBI Mutual Fund | 34,704 | 27,464 |
ICICI Prudential | 23,876 | 17,290 |
HDFC Mutual Fund | 23,579 | 21,352 |
Motilal Oswal | 6,722 | 3,124 |
Other firms like Quant, Aditya Birla, and Invesco also trimmed their cash piles significantly. Even PPFAS and DSP Mutual Fund joined the trend, albeit with more modest reductions in their liquidity.
The Contrarians: Who Built Up Cash?
Not everyone was ready to jump in. A handful of fund houses grew more cautious, perhaps bracing for even further volatility.
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Nippon India Mutual Fund led the pack of "cash hoarders," raising its reserves to ₹7,811 crore.
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Axis Mutual Fund and Edelweiss also increased their liquidity buffers.
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Smaller players like Baroda BNP Paribas and LIC Mutual Fund also chose to keep their powder dry during the chaos.
Also Read - India's Net FDI Inflows Drop For The Fifth Month In A Row
The Final Word
The sharp decline in cash reserves suggests that institutional investors believe the worst of the "war panic" might be priced in. By thinning out their cash to a 16-month low, India's money managers are betting on a recovery, even as the global energy market remains on a knife-edge.
Sources:
Moneycontrol
The Economic Times
This article is for informational purposes only and should not be considered investment advice from Kotak Neo. For compliance T&C and disclaimers, Visit www.kotakneo.com/disclaimer
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