A bear market is on the horizon? Big males stockpiled money before the crisis, from mutual funds to Warren Buffett

If you’re struggling to make sense of valuation metrics like PE or PB to gauge how overvalued the stock market is, there’s a straightforward indicator – analyzing the amount of cash that major players are holding.

Just before a combination of negative factors such as the unwinding of the Japanese Yen carry trade, recession fears in the USA, and escalating geopolitical tensions in the Middle East shook global markets from Sensex to Nasdaq, Buffett’s cash reserves had surged to almost $277 billion in the June quarter.

For the seventh consecutive month, Buffett’s cash hoard had increased, indicating the challenge he’s facing in finding good stocks at attractive prices. Experienced American investor Jim Rogers is also sitting on a substantial cash pile and is not yet ready to buy the dip. He has even forecasted that the next market collapse will be quite severe.
“America and the world are long overdue for a problem. I’m holding a lot of cash because I anticipate the next market sell-off to be the worst in my lifetime, given that debt levels have risen significantly globally. Even India has accumulated debt now. So, there’s cause for concern. I’m worried,” he said.

Back in the Indian market, the total cash holdings of all equity-based mutual funds amounted to Rs 1.52 lakh crore or 4.59% of their total AUM in June. In June, India’s largest fund house SBI Mutual Fund had the highest cash allocation of Rs 26,902 crore. Other firms like ICICI Prudential and HDFC AMCs also held cash reserves of at least Rs 20,000 crore.

While substantial cash holdings indicate a bearish outlook, they also ensure that significant market downturns are met with buying activity.

“Domestic AMCs are sitting on a large cash pile, which will help stabilize Indian markets in the near future. Additional inflows through NFOs and SIPs are only adding to it. Investors can consider phased investments in mutual funds in case they are unable to identify individual stocks,” explained Piyush Nagda, SVP – Investment Services, Anand Rathi.
However, those looking to buy into the dip – whether through stocks or mutual funds – should do so gradually, as we may be witnessing the beginning of a downward trend before the trade setup becomes favorable again when the Fed commences interest rate cuts.

Investors should reassess their overall asset allocation, and if their investment horizon exceeds 3 years, these market downturns could present buying opportunities, noted Siddharth Alok of Multi Ark Wealth.

Throughout history, periods of market volatility have presented investors with opportunities to adjust their asset allocation.

Vinit Sambre, Head of Equities at DSP Mutual Fund, suggests that if valuations become more reasonable, the current market turbulence can be tactically utilized to gradually increase exposure to equities with a long-term view of 5-7 years. Despite existing uncertainties, the overall long-term outlook remains positive due to robust fundamentals, government interventions, and a steady banking sector.

It is anticipated that this is a correction of medium duration, which will offer a compelling long-term investment opportunity for patient investors.

CEO of TRUST MF, Sandeep Bagla, emphasizes the need to recognize that the recent market performance has been extraordinary and is unlikely to be sustained in the future. He advises investors with a sufficiently long investment horizon to consider strategic, systematic investments over the next few weeks of correction, particularly in areas where valuations are not overly inflated.

(Note: Views and opinions expressed by experts are their own and do not necessarily reflect the views of the investcorpus.)