Mutual Funds Go All-In: Cash Hoard Lowest in 5 Years

Mutual fund managers have reduced cash in equity portfolios to a five-year low, seeking investment opportunities in recently declined banking and IT stocks. In June, cash holdings represented 2.43% of total equity assets under management, the lowest since November 2021. This strategic deployment aims to capitalize on attractive valuations and resilient earnings.

Funds like Parag Parikh Flexicap have notably decreased their cash positions, moving from 17.3% in April 2025 to 4.1% in June. This shift is driven by identifying companies with low valuations due to short-term market pessimism, despite their long-term quality. Financial services, particularly private banks, along with natural gas and IT services, are key focus areas.

Historically, higher cash reserves indicated scarce buying opportunities. However, India's premium valuations, coupled with a slowdown in corporate earnings since September 2024, led to foreign investor outflows. This resulted in blue-chip sector valuations, including private banks and IT, falling below long-term averages, creating investment opportunities for fund managers.