Mumbai: Indian fund investors are flocking back to stocks on hopes market-friendly reforms by the new government would help sustain the stunning 85% surge in the benchmark index since early March.
Net inflows into domestic equity funds rose to Rs1,930 crore billion in May, the highest in 14 months, and more than twice the amount in the first four months of 2009, according to data from the Association of Mutual Funds in India.
It includes more than Rs800 crore collected by a fund from ICICI Prudential Asset Management - more than what 18 stock funds collected in the last eleven months, marking a significant shift in investors risk appetite.
“There is certainly a revival in sentiment and interest from investors,” said Anthony Heredia, chief executive of Morgan Stanley Investment Management.
The revival comes in the backdrop of a tough 2008/09 for the Indian mutual fund industry, which saw assets shrink by nearly a fifth to Rs4.2 trillion in the year to March. More ominously, profitable equity assets shrunk by more than a third.
“The current surge in investor interest and also markets are firstly because of the way the election result has turned out to give us a majority government for the next five years,” Heredia said.
A return of risk appetite globally, sending billions of dollars into stocks of emerging markets, and hope the worst might be over for India’s corporate earnings was also fuelling a revival in flows into domestic stock funds, he added.
Indian shares surged 28.3% in May, the highest in 17 years, after the Congress-led coalition won an unexpectedly strong mandate in the polls.
Hopes are also high on a revival in stalled reforms such as higher foreign investment limits in retail, airlines and banks, pension, land and agriculture reforms and a fresh lease of investments in infrastructure.
However, data also indicate investors pulling out more money from stock funds to take advantage of rising share valuations.
Redemptions at Rs3,822 crore in May was about 80% more than the previous month and highest in 13 months.
However, investors allocated Rs5,750 crore, nearly three times they invested in April, boosting prospects of better flows into the Rs6.6 trillion Indian mutual funds industry.