Political stability, lower inflation, hopes of earnings growth fuel inflows into equity funds, says Amfi
Equity markets rose more than 1% in May after the victory of the Narendra Modi-led National Democratic Alliance
Mumbai: Mutual fund investors pumped ₹7,675.36 crore into equity schemes in June, up 54.5% from the previous month, the Association of Mutual Funds in India (Amfi) said. However, the amount was still 20% lower than June 2018’s inflows of ₹9,660 crore.
Political stability, lower inflation and hopes of earnings growth thanks to the central bank’s stance on lower interest rates fuelled retail inflows, Amfi said in a statement on Monday.
“Stellar jump in the inflows into equity schemes over the last two months, especially after the decisive electoral verdict has helped repose retail investor trust. On the fixed income side, although there have been outflows from liquid schemes, the flows into Gilt schemes and Long duration schemes have stood positive, owing to RBI’s dovish stance on interest rates," said N.S. Venkatesh, chief executive, Amfi.
Equity markets rose more than 1% in May after the victory of the Narendra Modi-led National Democratic Alliance (NDA) in the Lok Sabha elections. However, the rally fizzled out in June.
“There has been a surge in net inflows after the election, due to the political certainty that has now come in. We have also seen flows from institutional investors like exempted provident fund trusts which can invest up to 5% of their corpus in diversified mutual funds," said A. Balasubramanian, chief executive of Aditya Birla Sun Life Asset Management Co.
Domestic institutional investors including mutual funds and insurance companies who were net sellers of Indian equities consecutively for three months till April saw a pick-up starting May.
They bought Indian equities worth ₹5316.34 crore in May, followed by inflow of ₹3643.31 crore in June.
Foreign institutional investors bought Indian shares worth $148.91 million in June.
Inflows from systematic investment plans (SIPs) were little changed. The total amount collected through SIPs in June was ₹8,122.13 crore against ₹8,183.09 crore in May.
SIPs allow people to invest a fixed amount in a mutual fund scheme periodically at fixed intervals.
Amfi data also showed that inflows into large-cap funds grew over 28 times to ₹1,509.52 crore in June from ₹52.88 crore in May.
Most debt fund categories saw outflows. Liquid funds saw an outflow of ₹1.52 trillion.
However, experts attributed this to seasonal factors and institutional money. “The outflow from debt funds is due to quarter-end accounting and payment needs of institutions," said Swarup Mohanty, CEO, Mirae Asset Mutual Fund. “However, going forward, we expect stabilization in debt following the new Sebi regulations. The overnight funds category in particular will be a major beneficiary."
Vijai Mantri, chief investment strategist at JRL Money, added that the ongoing liquidity crisis has made investors jittery.
“This is keeping high networth Individuals (HNIs) away from debt funds," he added.
Several debt mutual funds were impacted in June by downgrades or defaults in companies like Dewan Housing Finance Corp. Ltd and Sintex Industries.
Hybrid funds, excluding arbitrage funds, saw a net outflow of ₹2,302 crore.
Arbitrage funds use derivatives to give a return akin to debt funds and are hence not hybrid funds in the strictest sense.
Mahesh Mirpuri, founder of Invest Mutual, a mutual fund distribution firm based in Chennai, attributed the continued outflows to mis-selling of hybrid funds. These funds are sold on the promise of regular income and they do not subsequently live up to the claims made, he said.