Tuesday, March 17, 2009

MFs’ Nifty futures exposure up 2.5 times in 1 year

Nifty--the darling of the trader and investor community in Indian equity markets--is on the radar of the mutual fund managers. Fund houses
increased their exposure to Nifty derivatives from Rs 1,225 crore, or 0.65 per cent of the total assets under management under equity, balanced and ELSS funds, to Rs 1,827 crore, or 1.64 per cent, in February. This amounts to 2.5 times increase in the quantum of derivative exposure, an analysis of the data provided by valueresearchonline.com about fund holdings since March ’08 till February ’09 reveals. Says a fund manager under the condition anonymity, “Normally when one takes exposure to Nifty futures the possibility of under-performance is very low. In fact, there is a case wherein Nifty futures trades at a discount to the spot. And this is primary advantage one has while taking exposure to Nifty futures. Even the transaction costs involved in buying Nifty futures is marginal.” Another factor that has resulted in the increased exposure to Nifty derivatives is the uncertainty in the performances of sectors. The number of schemes that took exposure to Nifty derivatives also increased from 12 to 30 over the same period. Though the participating schemes have grown multi-fold the exposure has gone up by 50 per cent, thanks to the market meltdown. DSP Blackrock (6schemes) and ICICI Prudential (9 schemes) are the two prominent players that took exposure to Nifty derivatives as on Feb 28, 2009. DSP Blackrock increased Nifty derivative exposure from Rs 293.83 in five schemes in March ’08 to Rs 611 crore in six schemes in February 2009. On the other hand, ICICI Prudential AMC raised Nifty derivative exposure from Rs 1003 crore in five schemes in March 08 to Rs 1048.86 crore in nine schemes in February 2009. Gradually unwind and then move to individual stocks, identification, higher returns, buy Nifty, with the market, convert into individual stocks. It gives you a breathing space. “Rising exposure to Nifty derivatives is an outcome of the pressure to perform in sync with the market at a situation where there is comprehensive volatility in the market,” says a mutual fund expert with a leading wealth management set up. The performance pressure on the fund houses led to tactical changes in portfolio constitution in accordance with the market movement. As on Nov 28, 2008, the exposure to Nifty derivatives reached the maximum at Rs 2434 crore at a time when the Nifty gained more than 9 per cent from the all time low of 2524 recorded on October 27, 2008.
Says Sidharth Bhamre, fund manager, PMS and derivative analyst at Angel Broking, “Fund managers do have pressure to perform in these market conditions. In a bull market, when all goes smooth, taking risk in terms of going for momentum stock exposures works for many. But in a falling market, even with the market you don’t earn. And considering that now the Nifty available at a forward of P/E of 9, it makes more sense to take exposure to Nifty index rather than individual stocks from a valuation perspective.”

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