To shore up cash, companies redeem liquid funds | Economic Times

Mumbai: You weren’t alone in queuing up at currency kiosks to draw cash just when the local authorities from Chandigarh to Chennai began clamping curfews. Big companies with big purses did exactly the same, albeit in a different segment of the market.Overnight and liquid funds, where large companies park their short-term surplus cash, saw a net outflow of Rs 57,020 crore in May, reflecting the urgency to hold immediate cash. Low yields also prompted the companies to retreat.“Corporates and financial institutions are the key contributors to short-term debt funds, which saw unusual outflows in May,” said Soumyajit Niyogi, associate director – India Ratings. “It seems that they have withdrawn resources from the mutual funds to manage routine business expenditures with interrupted production or services.”Investors liquidated a net of Rs 45,447 crore from liquid funds and Rs 11,573 crore from overnight funds, show data from the Association of Mutual Funds of India (AMFI).This is the largest such exit in May since 2017. It is also the biggest single-month outflow since September last year. There was a net inflow of Rs 60,000 crore in April.“Both banks and companies were seeking higher returns amid record-low interest rates,” said Sandeep Bagla, CEO, TRUST Mutual Fund. “Those short-term debt funds (overnight and liquid) were yielding less than top-rated corporate FDs or at times, reverse repo rate. This, combined with the need for cash collectively, could have triggered the unusually high outflows in May.”This calendar year, both debt liquid and overnight funds yielded 1.34-1.37 per cent, show data from Value Research Online, an analytics firm.The reverse repo, at which banks park excess cash with the central bank, is now at 3.35 per cent.State Bank of India offers 2.9-3 per cent, with less than one-year maturities to depositors parking Rs 2 crore or above.“It is natural for companies raising cash balances liquidating short term investments amid the pandemic,” said Ashwini Kumar, head of Fixed Income and MF at ICRA Analytics. “With restrictions on people's movements, companies were seen incurring certain overhead costs without any yields. However, the trend of net outflows may change depending on unlocking programmes.”83493110The category of “overnight fund” was introduced in 2019 through a regulatory classification. Prior to that, it was perceived to be a part of a “liquid and money market fund”.Some corporate treasuries are said to prefer top-rated corporate deposits yielding a few basis points higher than bank deposits. Bajaj Finserv and HDFC are two such options. Both offer in the range of 5.65-6.55 per cent for deposit plans with one-to-seven-year maturities.Banks are shying away from short-term debt plans too as they aim to generate more treasury income in the absence of enough credit demand.