Selling pressure leaves MFs in the lurch - Views on News from Equitymaster

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Selling pressure leaves MFs in the lurch

Apr 4, 2000

Mutual funds (MFs) will view the heavy selling pressure on the bourses today with a lot of discomfiture. As major stocks are hitting the downward circuit, MFs find themselves in the lurch, as they are unable to get out of stocks to meet demand for redemptions. Stock market darlings like NIIT, Satyam Info, Infosys have hit the downward circuit for the better part of the day. This has affected investors in these stocks, who were unable to sell. Mutual funds (MFs) in particular have been adversely affected by the negative sentiment in these stocks and to rub it in, they are reduced to being mere spectators to the blood bath on the bourses. As stocks hit the downward circuit, MFs are unable to offload in order to meet redemption demand from nervous investors.

As panic seems to spread in the markets, tomorrow may witness a repeat performance in these counters as they are likely to open on the downward circuit. This will be more bad news for MFs, who will face increasing redemptions, but will again not be able to sell. This implies that investors who remain invested in these funds will bear the brunt of the decline in net asset values (NAVs) to the benefit of those investors who exit early.

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