Mutual fund investments are surging in India as traditional investment avenues like real estate, gold or even fixed income are not showing attractive returns
Mumbai: Shareholding of domestic mutual funds and insurance firms in India’s largest listed companies in the March quarter rose to the highest in at least 25 quarters, data shows.
According to data provided by Capitaline, at the end of March quarter, domestic institutional investors (DIIs) held 11.5% in the BSE 500 index, which accounts for at least 88.11% of India’s total market capitalization. Only 381 firms of the 500 for which data is available for 25 quarters were considered for the review.
The share of DIIs in these same companies was at 11.32% in the three months ending December, and 10.12% in the year-ago period.
Analysts said financialization of savings after demonetisation and lack of other asset classes with better returns prompted robust inflows into equities. “Domestically, TINA (there is no alternative) factor has been playing out in the markets as traditional alternatives such as real estate, gold or even fixed income are not showing attractive returns, unlike equities. This is the main reason why SIP inflow is intact. This trend will change only when any of the other asset classes start performing," said Pankaj Pandey, research head at ICICI Securities.
SIP, which stands for systematic investment plan (SIP), is an investment plan offered by mutual funds wherein one can invest a fixed amount in a mutual fund scheme at fixed intervals. Mutual fund industry lobby Association of Mutual Funds in India (Amfi) data shows that on an average, the industry added 970,000 SIP accounts each month in FY18 against 627,000 in FY17.
The total amount collected through SIP during March 2017 was Rs7,119 crore, according to Amfi. DIIs bought a net Rs30,405.39 crore worth of stocks in the year so far, while foreign institutional investors (FIIs) net purchases in the period was $1.5 billion.
“Habit of investing into equities is expected to strengthen in India and mutual funds and insurance companies are likely to get high flow of money in next 5-10 years. There is a realization among investors that there is higher return if one sticks into equities for longer term. Financialization of savings is here to stay," said Ajay Bodke, chief executive and chief portfolio manager, Prabhudas Lilladher Pvt. Ltd.
However, foreign investors’ ownership in the biggest listed companies is only marginally higher in the March quarter.
The percentage holding of foreign institutional investors in the same set of 381 firms rose to 20.42% by the end of March, compared to 20.19% at December-end. In the year-ago period, it stood at 20.44%.
In the three months to March, the BSE 500 was down 5.85%, while benchmark indices Sensex and Nifty lost 3-4%. The MSCI EM was up 2.39% and MSCI World fell 0.68%.
Indian markets recovered firmly in April with benchmark indices gaining around 4%, and are now among the most expensive among peers, while the wait for a corporate earnings revival continues.
That could be bothering foreign investors as India is poised to face risks such as rising crude prices, probability of a global trade war, and high volatility due to elections going ahead, and markets are estimated to be range-bound.
Bodke believes that if earnings recovery remains tepid and the high-teens growth factored in by most analysts for FY19 disappoints, then one would not be surprised if the market hit an air pocket.
“The markets are likely to be range-bound in 9,800-11,000. Medium-term trajectory of the markets will rely on few factors, like strength of revival of corporate earnings, global crude oil price, Reserve Bank of India (RBI) stance on monetary policy, turbulence in global asset markets and the outcome of assembly polls ahead of the general elections next year," he added.
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