Cash-rich cos back to investing in liquid MFs

K.Venkatasubramanian

BL Research Bureau

India Inc seems to be taking a more active approach to managing its surplus cash, going by the increase in the amounts that it invests in liquid mutual funds. Consider this: Infosys Technologies, which had no investments in liquid mutual funds as of March 2009, had Rs 2,518 crore invested in liquid funds by March 2010.

The story is similar with Patni Computer, which has seen its investments in liquid mutual funds more than double to Rs 1,605 crore by March this year.

Other cash-rich companies outside of the IT sector such as ITC, Reliance Industries and Ambuja Cements have also seen sharp (48-357 per cent) increases in the sums parked with liquid mutual funds.

But deposits with banks still remain the most preferred mode of holding surpluses for the larger companies, accounting for over half their cash balances. For companies such as Infosys, Crompton Greaves,Ambuja Cements, Polaris and MindTree, the proportion of their cash and investments parked in liquid mutual funds has risen 5-17 percentage points.

Others in the IT pack, such as Wipro and TCS, too have seen increased investments in mutual funds, though not to the same extent. The key attraction may be that liquid mutual funds allow companies to withdraw at any time. They are also more tax-efficient than bank deposits.

Speaking to Business Line, Mr R. Srikanth, Chief Financial Officer of Polaris Software, said, “Liquid mutual funds and fixed maturity plans (FMPs) give a (post-tax) yield of 5.5-6.78 per cent, which is much higher than fixed deposits.” He added that going forward, the company would invest more in liquid mutual funds and FMPs and only then, would consider bank deposits.

Asked about the concerns (in late 2008 and early 2009) over the credit risk attached to the portfolios of fixed maturity plans, Mr Srikanth said, “Indian AMCs are well regulated and structured and they take informed decisions based on ratings of bonds and debentures; so, there is very limited risk on that front.”

Government bonds

Even as some companies have opted to shift their surpluses from banks to more actively managed options such as mutual funds, multinationals seem to be continuing to take a conservative stance. Companies such as GSK Pharma and Siemens preferred to invest their surplus mainly in bank deposits during 2009-10.

Apart from deposits, other key investments for corporate treasuries were debentures and bonds, usually from Government entities or PSUs, where larger companies have more than doubled allocations. Companies such as ITC, RIL and GSK Pharma invested in bonds of Nabard, Indian Railway Finance Corporation, IIFCL, HDFC and LIC Housing Finance. Reliance Industries also invests in the debentures of global financial institutions based in India. There are also one-off cases such as TCS subscribing to Rs 1,000 crore worth debentures from Tata Sons, while Reliance Industries invested Rs 700 crore in optionally convertible preference shares of Shinano Retail.