India in midst of ‘domestic liquidity supercycle’: Morgan Stanley report
New Delhi: Equity markets are in the middle of strong capital inflows and the “dream run” may just be starting as India makes the most of “domestic liquidity supercycle”, says a Morgan Stanley report. According to the global financial services major, August recorded 17th straight month of positive flows.
Domestic equity mutual funds received inflows of $3.9 billion, the highest ever for any month, and if exchange-traded funds (ETFs) are included, the figure stood at $4.1 billion. Year-to-date, domestic mutual funds have received equity inflows of $18.6 billion while ETF infusion so far this year read $2.6 billion, it said.
“By the end of the month (August), equity mutual fund AUM stood at $111 billion, and as a percentage of market cap rose to 5.3 per cent, its highest level since July 2000. Similarly, equity ETF assets rose to new highs of $8.4 billion,” the report added. Moreover, fixed income funds remained positive with inflows of Rs356 billion.
On a year-to-date basis, fixed income infusion, at $19 billion, is close to equity flows. At August-end, fixed income AUM rose to $211 billion, from $202 billion in the previous month. The total assets under management (AUM) for the MF industry stood at $322 billion—a record—it added. “We remain of the view that India is in the midst of domestic liquidity supercycle,” Morgan Stanley India strategists Ridham Desai and Sheela Rathi said in a research note.
The report further noted that National Pension System’s (NPS) equity assets are expected to be at $3.5 billion, while Employees’ Provident Fund Organisation (EPFO) has raised its equity allocation to 15% in 2017-18, from 10% in 2016-17. “NPS’ pension assets stood at $30 billion at the end of July. We estimate their equity assets to be at $3.5 billion,” Morgan Stanley said, adding that “as per our estimate, EPFO could likely invest Rs250-300 billion in equities in fiscal 2018, of which Rs57billion have been invested this year thus far”.