Cash levels at equity mutual funds climbed to an average of 6% of assets for the March quarter, according to data from Morningstar Investment Adviser India Pvt. Ltd. That is the biggest proportion since 2012.
Equity funds are reacting to a side-effect of the S&P BSE Sensex index’s 10% gain this year: concerns that stocks are overpriced. Valuations at the end of March were at the highest level since 2010 amid bets that a state election victory will embolden Prime Minister Narendra Modi to push ahead with his reform agenda.
“Fund managers are being cautious as valuations are looking stretched”, Taher Badshah, chief investment officer of equities at Invesco Asset Management (India) Pvt. Ltd in Mumbai, said. “The cash buffer will give them the ammunition to take advantage of any correction in the market.”