Corporates such as ITC, Hindustan Zinc, Sesa Goa, Asian Paints, ACC, Reliance Industries , Larsen & Toubro , Emami , and several mid-cap IT firms have started making small investments in equity funds managed by leading asset management companies. Market correction in March and April, which resulted in Sensex declining over 16%, provided a good entry point for corporate treasuries to invest in equity mutual funds.
"Treasury managers are testing waters with small investments - say about 30-50 crore per fund. They invested a few thousand crore in February, March and May, when the market corrected by a few percentage points," said the CEO of a mid-sized fund house. "These companies have taken a valuation call. They have invested in funds as they feel markets will not fall any further and there is significant upside over the next 16-18 months," the CEO said.
Fund marketers are attributing the 1,546-crore worth of equity fund inflows in May to investments made by corporate treasuries. As on May 31, corporates have investments worth 21,088 crore (through 2.27 lakh unique investor folios) in equity mutual funds. This forms about 11% of overall equity fund asset base. About 40% of this money is invested for a period exceeding 24 months, as per data from Association of Mutual Fund in India.
Historically, corporates, as part of treasury and cash-flow management, invest 90% of their surpluses in short-term debt funds. It is only companies with large surpluses, a few mid-caps and some small and medium establishments that are taking opportunistic investment calls in equities market. "It's mostly SMEs and some listed companies (with specific investment mandates) that are investing in equity mutual funds currently," said Sundeep Sikka, chief executive officer, Reliance Mutual Fund.
"Companies with investment mandates prefer to invest in markets through equity mutual funds. Corporate treasuries, most of the time, have only two-three officials managing cash levels and investments. Corporate treasuries entrust their money with mutual funds as they do not have the expertise or research to manage equity investments," Mr Sikka said.
Companies like Hindustan Zinc (mutual fund investments worth 9,332 crore), Sesa Goa (mutual fund investments worth 8,799 crore), ACC (fund investments of 1,320 crore), Asian Paints (fund investments of 869 crore) and ITC (fund investment worth 3,282 crore) have invested in equity mutual funds at different points of time and market levels. An email sent to Hindustan Zinc, Sesa Goa, ACC, Asian Paints and ITC to understand their investment philosophy failed to elicit response.
"Most corporate treasuries have larger chunks of their investments in liquid debt funds. Only companies with large surpluses will take some risk and invest in equities. These investments are long-term in nature and they expect just about 14-15% return on their equity fund investments," said Tarun Bhatia, director (capital markets) Crisil Research. According to industry sources, corporate investments in equity funds will counter-balance redemption outflows from retail investor portfolios. Institutional investments in equity funds will also help fund houses to earn more asset management fees.