India in midst of ‘domestic liquidity supercycle’: Morgan Stanley report
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 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”.
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