Mumbai: Net inflows into equity mutual funds plunged 64% in April to the lowest in 31 months as investors turned risk-averse because of uncertainty related to the general election, a spate of rating downgrades and a rise in crude oil prices.
In April, net inflows into equity mutual funds fell to ₹4,229.47 crore from ₹11,756 crore in the preceding month, according to data released by the Association of Mutual Funds in India (Amfi).
Investors may probably stay on the sidelines until after the polls as some surveys have pointed out that Prime Minister Narendra Modi’s Bharatiya Janata Party may not get an outright majority in the national elections. At the same time, a spate of rating downgrades over the past fortnight has stoked fears of another liquidity crisis affecting non-banks.
“Investors have remained on the sidelines due to elections and are waiting for its outcome. We expect equity mutual funds to see higher inflow after the big event is over," said Rupesh Patel, a fund manager at Tata Asset Management.
Inflows from systematic investment plans (SIPs), however, remained steady. The total amount collected through SIPs in April was ₹8,238 crore, as against ₹8,055 crore in March, according to Amfi data. SIPs allow people to invest a fixed amount in a mutual fund scheme periodically at fixed intervals.
Fund managers also cited volatility in stock markets as one of the reasons for the reduced fund inflows in April.
“Markets volatility, fewer working days in April and low distributors’ push post reduction in expense ratio from 1 April have led to the slowdown in inflow into equity mutual funds," said A. Balasubramanian, chief executive of Aditya Birla Sun Life AMC Ltd.
The National Stock Exchange’s India VIX index, which tracks investors’ perceptions of volatility, rose 27% in April and is up 59% this year.
Elevated levels of the index indicate that investors are expecting a major correction at least over the next month.
Year to date, the benchmark Sensex has risen 4.13%, while in April it rose 1%. However, in the past seven sessions the Sensex fell 3.86%.
The slowdown in net inflows into equity mutual funds is reflecting in the data for domestic institutional investors. They were net sellers of Indian shares worth ₹17,213.46 crore this year so far, selling ₹4,219.46 crore in April, according to Bloomberg. However, foreign institutional investors are still betting on India. They are net buyers of Indian equities worth $9.87 billion in 2019, while buying $1.54 billion in April.
NS Venkatesh, chief executive of Amfi, expects investors to return, as corporate earnings improve, and the general election-related uncertainty and global headwinds recede over the next few months.
“Overall nervousness in the markets owing to credit events, rating downgrades and defaults, coupled with global trade imbalance and uncertainty over outcome of general elections, has led to investors getting into wait-and-watch mode," he added.