Mutual funds keep cash holdings elevated in April despite sharp market rebound

Mutual funds maintained elevated cash holdings in April even as Indian markets staged a sharp rebound during the month on easing geopolitical tensions. Combined cash holdings of mutual funds stood at Rs 1.99 lakh crore at the end of April, up from Rs 1.86 lakh crore in March.

Indian markets posted strong gains in April, with the benchmark Sensex and Nifty rising 7 percent and 7.5 percent respectively. Broader markets outperformed sharply, with the BSE MidCap 150 and BSE SmallCap 250 indices surging 12.7 percent and 18 percent respectively.

Despite the rally, around 55 percent of mutual funds increased cash holdings in their equity schemes during April, according to latest ACE Equities data. Of the 53 fund houses analysed, 30 raised cash holdings during the month while 23 trimmed them.

Analysts say the reluctance to deploy cash more aggressively reflects an underlying wariness about stretched valuations across market segments. While fund managers usually hold cash to cushion volatility, maintaining a defensive stance for too long can become a performance drag. Most fund houses are therefore choosing to align deployment with earnings visibility and valuation comfort rather than making bold cash calls.

Among large fund houses that increased cash holdings as a percent of total equity assets under management, ICICI Prudential MF raised its cash holding to 4.11 percent in April from 3.5 percent a month ago. DSP MF increased its holding to 6.82 percent from 4.81 percent, HDFC MF edged up to 5.11 percent from 5.08 percent, and SBI MF raised its cash holding to 3.92 percent from 3.89 percent.

Quant MF's cash holding rose to 14.38 percent from 13.8 percent a month ago. Franklin Templeton, Bandhan, Aditya Birla, Tata, Canara Robeco, Sundaram, Motilal Oswal, and PGIM India were among other fund houses that also raised cash holdings during the month.

On the other side, PPFAS MF trimmed its cash holdings as a percent of total equity AUM to 18.7 percent in April from 21.76 percent in March. Axis MF reduced its cash holding to 7.6 percent from 9.31 percent, while Nippon India MF brought it down to 1.45 percent from 1.93 percent.