Top cos don't seem to trust MFs with their money
18 Sep, 2007, 0135 hrs IST,Apurv Gupta & Shailesh Menon, TNN
MUMBAI: Institutional money dominates assets under management (AUM) by
Indian mutual funds (MFs). But leading companies do not appear to be
rushing to entrust their surplus funds with assets management
companies. An ET analysis of investment patterns of 50 companies in
the Nifty group reveal that corporate investments in MFs have not
risen significantly over the past few years.
Around 15 Nifty companies (including PSUs and banks) have no exposure to MFs.
However, MF exposure of companies like Hindalco, Wipro, TCS,
GlaxoSmithKline and ACC has risen over the past three years. One
reason, according to industry officials, could be that many companies
have an active treasury arm that decides on investments.
Of the total financial investments of Rs 3,68,000 crore made by Nifty
companies, only Rs 30,300 crore, or 8.25%, was allocated to MFs in the
financial year 2006-07. This is an improvement over 6.4% during the
previous financial year, and 5.7% the year before that. Financial
investments consist of money deployed in g-secs, other approved
securities, investment in assisted companies (banks), debentures, PSU
bonds, shares and MFs. Attributing this trend largely to peaking of
capital expenditure cycle, the head of a foreign asset management
company says, "Companies with surplus cash are reinvesting in capital
expansion programmes. At other times, they are investing in liquid
funds, as they can pull out money quickly when required."
Another thing to consider is that balance sheet figures are
understated and March may not be the correct representative of all the
"You may not get the right data if you look at the investment schedule
of companies. Companies are investing surplus money more into FMPs as
they provide more tax arbitrage benefits. They are not really keen on
equity funds as they are a bit risky and early redemptions are
penalised," said Haribhakti Group CEO Shailesh Haribhakti.
Recently, the government gave permission to public sector undertakings
to invest up to 30% of their surplus cash in state-owned MFs, but not
many fund managers expect huge inflows from that direction.
"Large companies are comfortable investing in liquid funds, they are
not keen on waiting for the long-term even if returns are higher.
Liquid funds allow companies to pull out whenever they want money.
They offer liquidity, yield decent returns and provide tax benefits to
the company," said the chief executive of an AMC.
Currently, bluechip PSU companies are parking their surplus funds in
fixed deposits of nationalised banks, RBI bonds and treasury bills.
Again, only a handful of MFs would come under the ambit of public
sector MFs where this money can be parked.
According to Public Enterprises Survey, the total surplus of Central
PSUs in 2005-06 was Rs 2,39,535 crore.
Many AMCs feel that there are a large number of mid-cap companies with
surplus cash, which could be tapped as potential MF investors.
"There are various reasons why we have not been actively pursuing
smaller companies as potential clients. Low margin is one of the
reasons. These companies do not have huge funds, but require as much
efforts as we would put into wooing a large company," says a senior
official at a MF.
"But we are planning to introduce new strategies like focusing on
smaller cities where these companies are located, which was earlier
untapped," he adds.
Niteen S Dharmawat
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