Mutual Funds Reduce Cash Holdings to 16-Month Low Amid March Market Decline

Mutual Fund Cash Holdings Plummet to 16-Month Low Amid Market Correction

Indian mutual funds used the recent market correction as a buying opportunity, leading to a sharp decline in cash holdings to a 16-month low in March. According to data from ACE MF, mutual fund cash holdings fell to Rs 1.86 lakh crore in March, down Rs 24,319 crore, or 12 percent, from Rs 2.1 lakh crore in February.

Despite the decline in cash holdings, overall equity cash levels remained elevated. Data showed that nearly 60 percent of mutual funds deployed their cash holdings to buy stocks during the correction, while the rest either increased or maintained their cash positions. The sharp fall in cash holdings was largely due to fund houses using the correction as a buying opportunity.

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Indian markets remained under pressure amid rising geopolitical tensions and elevated crude oil prices, which raised concerns over inflation and growth. Analysts said higher oil prices could widen the current account deficit, increase the subsidy burden and add to broader macroeconomic pressures. During the correction, more than 50 percent of stocks hit their 52-week lows. Benchmark indices Sensex and Nifty fell 11.5 percent each, while broader market indices BSE MidCap 150 and BSE SmallCap 250 declined 10 percent each.

Some fund houses that reduced cash holdings include Aditya Birla Mutual Fund, Tata Mutual Fund, Invesco, Bank of India Mutual Fund, PPFAS, and DSP Mutual Fund. Invesco's cash fell to Rs 1,380 crore from Rs 2,487 crore, Bank of India Mutual Fund's to Rs 513 crore from Rs 1,503 crore, PPFAS to Rs 29,328 crore from Rs 29,740 crore, and DSP Mutual Fund's to Rs 5,306 crore from Rs 5,691 crore.

On the other hand, some fund houses raised cash holdings. Nippon India Mutual Fund was the biggest, increasing cash to Rs 7,811 crore in March from Rs 6,158 crore in February. Axis Mutual Fund raised cash holdings to Rs 16,470 crore from Rs 15,296 crore, while Edelweiss Mutual Fund increased cash to Rs 1,505 crore from Rs 1,147 crore. Other fund houses that raised cash holdings included Baroda BNP Paribas, Canara Robeco Mutual Fund, Abakkus Mutual Fund, and LIC Mutual Fund.