MUMBAI -- Indian fund managers may continue to deploy more cash in equities to make the most of the buoyant markets, even though the pace of investments slowed in August to the lowest level in four months as stock valuations edged higher.
Indian shares have rebounded sharply from their March lows and are trading at their highest levels in nearly 16 months. The Bombay Stock Exchange's benchmark 30-stock Sensex has more than doubled from 8,047.17 on March 6 to a close of 16,677.04 Wednesday."Liquidity has been driving the markets, and I am sure fund managers will continue to find some value propositions even at these levels," said Chintamani Dagade, senior research analyst at Morningstar India Pvt. Ltd.
Deven Choksey, managing director of K.R. Choksey Securities, expects the Sensex - which is currently trading at around 17 times its one-year forward earnings - to rise to as high as 18,000 by the end of December this year.
Mutual funds were net buyers of 5.70 billion rupees ($118.5 million) in equities last month, the lowest since April and down sharply from a net investment of 18.26 billion rupees in July.
"I don't think funds would stop investing unless they start losing money perpetually," said Dhirendra Kumar, chief executive of New Delhi-based Value Research, which has been providing fund research and data since the early 1990s.
Analysts said the market regulator's ban on entry fee, effective Aug. 1, weighed on sales during the month while some investors cashed out on their investments.
Equity schemes saw a net outflow of 1.18 billion rupees in August as redemptions at 43.02 billion rupees were higher than inflows of 41.84 billion rupees. The schemes had recorded a net inflow for each of the previous three months.
"Many of the investors were able to achieve break-even and were relieved to exit their investments as the market reached levels seen in the second half of 2007," said Kumar of Value Research.
Krishnan Sitaraman, director of Crisil Fund Services, said inflows fell as sales were impacted by the ban on entry load - a fee asset management firms charged from investors mostly to pay distributors' commission.
The Securities and Exchange Board of India scrapped the entry fee to encourage retail participation in mutual funds. But industry players have raised concerns the ban will hurt sales as distributors will lose the incentive to sell funds.
"I feel inflows will dry up in this scenario post the ban, with stocks becoming increasingly expensive from the point of view of a retail investor," Morningstar's Dagade said.