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Business News/ Mutual Funds / News/  Mutual fund market tells a different tale than stocks in 2023 so far: Where are investors betting their money?
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Mutual fund market tells a different tale than stocks in 2023 so far: Where are investors betting their money?

As per the latest AMFI data, net inflows in mutual funds stood at ₹9,575.17 crore in February 2023 --- although lower than the inflow of ₹11,373.21 crore in January month --- but still this market has a positive track record of inflows for the past five consecutive months.

Equity mutual funds are among the most preferred investment mechanisms for investors in this volatile market scenario. (istockphoto)Premium
Equity mutual funds are among the most preferred investment mechanisms for investors in this volatile market scenario. (istockphoto)

In February month, Nifty 50 dropped by 2%, making its third consecutive monthly decline, while Sensex tumbled by around a percent. However, this was not the case, when it comes to the mutual funds market. The latest data of AMFI showed that investors' consistent faith in the MF market as February recorded an inflow of 9,575.17 crore despite the extremely volatile conditions. MFs are telling a different tale than then equities market since the start of 2023. In fact, investors have been parking their money since October last year in mutual funds.

As per the latest AMFI data, net inflows in mutual funds stood at 9,575.17 crore in February 2023 --- although lower than the inflow of 11,373.21 crore in January month --- but still this market has a positive track record of inflows for the past five consecutive months.

The last time the mutual funds market recorded an outflow was in September 2022 to the tune of 41,404.30 crore.

Equity mutual funds are among the most preferred investment mechanisms for investors in this volatile market scenario. In February, inflows in equity-oriented mutual fund schemes came in at 15,685.57 crore. Healthy net inflows in equity MFs have lifted the overall mutual fund market.

Gopal Kavalireddi, Head of Research at FYERS said, among equity funds, thematic/sectoral funds stood out with the highest inflows in 4 months, clocking Rs.3856 crore, trailed by small-cap funds ( 2,246 crore) and multi-cap funds ( 1,977 crore). Barring Dividend yield funds ( 48 crore), focused funds ( 240 crore), and large-cap funds ( 354 crore), the rest eight categories saw net inflows greater than 700 crore each. Index funds continue to gain investor allocation with a total flow of 6,244 crore.

Also, hybrid schemes recorded net inflows of 460.32 crore, while solution-oriented schemes posted an inflow of 169.44 crore. The second best performer after equity MFs would be other schemes which include index funds, Gold ETFs, other ETFs, and fund of fund investing overseas. These other schemes contributed an inflow of 6,488.18 crore in February 2023 to the overall market.

However, debt-oriented mutual funds witnessed a drop of 13,815.23 crore in terms of inflows during February.

Viraj Gandhi, CEO, of SAMCO Mutual Fund, said, “Range-bound markets, high-interest rates, weaker investor sentiments are the current mood of the markets but still healthy flows towards equity linked schemes suggest strong inclination towards equities rather than debt-oriented schemes in last 3 months".

Further, on debt MFs, FYERS' Kavalireddi said, with interest rates expected to rise from current levels, debt funds witness continued outflows as investors churn their allocation between short and long-term funds. Liquid funds outflows were the highest at Rs.11,304 crore, followed by Ultra short duration funds at Rs.2430 crore and Low duration funds at Rs.1904 crore. With inflation coming in higher after a two-month cooldown, RBI is wary of the evolving situation and might opt to increase rates in upcoming policy meets. As the US Federal Reserve vowed to interest rate hikes for a longer time to tame inflation, the terminal interest rate could reach 6 percent, prompting the further flight of capital from markets outside the US.

Overall, net assets under management (AUM) stood at 39,46,256.95 crore as of February 2023.

Kavalireddi said, for the financial year 2022-23, the AUM has risen by a mere 5 percent. on a year-to-date basis, Nifty 50 is down 3.93 percent, with Nifty junior down 10 percent and Nifty bank down 5.8 percent. With banking and large-cap companies dominating the portfolios of many mutual funds, the returns were subpar over the last few quarters. However, investors continue to invest in a disciplined manner, countering the volatility in stock markets arising out of FII outflows. Since October 2022, SIP contribution has been averaging above 13,000 crore mark every month.

Similarly, Jeevan Kumar KC, Head of Investment Advisory at Geojit Financial Services said, "It is visible that the Indian equity market has been showing some sluggishness since the starting of 2023. On the first trading day of the year, which means on 2nd of January the BSE Sensex was closed at 61167 points, later on the last trading day of the same month it was reached at 59549. The trend was continued in February as well as the market was closed at 58962 on the last trading day of the month. Overall a dip of 2205 points during the first 2 month of the year."

But in case of MFs, Kumar said, on the contrary to equity market, the Mutual fund industry tells a different story. AMFI has released the industry data for the month of February. Though market remains volatile retails investors seem to be more attracted towards mutual funds.

Kumar highlighted that the net inflow towards equity schemes were Rs. 15685 crores which is Rs.3139 crores higher than that of January 2023. The most preferred and popular investment method SIP’s monthly inflow for February was Rs.13685 crore. This is for the 5th consecutive months the SIP monthly inflow maintain its level beyond 13,000 crores. Valuations in small caps have reached at an attractive level and the same has been reflected in a better inflow of 2,246 crores in the segment.

Explaining the fall in Sensex and Nifty 50 during February month, Kavitha Krishnan, Senior Analyst – Manager Research, Morningstar India said, "The month of February was an interesting one as markets corrected based on concerns around rate hikes, high inflation, geopolitical tensions, and signs of a global slowdown. A weakening rupee also placed additional pressure, leading to a fall in the indices. Fluctuations in the stock prices of Adani too had an impact on the indices that it was a part of. A look at the indices shows that all of them ended the month in red, with the Metals index leading the fall."

Also, Krishnan said, "despite this fall in the markets, investors seem to be making conscious decisions, with their overall preference towards investing in dips becoming evident. Domestic investors continue to place confidence in the market, as broader economic indicators remain favorable towards the India growth story. This is despite the FII selling that we’ve witnessed in the market over the past month.

Geojit's Kumar believes the latest AMFI data divulge the fact that the investors are getting more matured and they are prepared enough on how to use the opportunity wisely. He said, "The consistent rise in SIP inflow is a positive sign as the retail investors realizes the volatility in the market essentially averages out their purchasing cost over a long investment tenure and they also don’t need to worry about how to time the market when the opt SIP route."

Moreover, the inflow in mutual funds through SIPs in February stood 13,686.23 as compared to 13,856 crore in January. The inflow in SIPs in February was lower by 169 crore. However, contribution from SIP (Systematic Investment Plan) has been averaging above 13,000 cr mark every month since October 2022.

Going ahead for debt market, Krishnan said, "With the central bank’s focus on moderating inflation, the monetary policy has been tailored ensure a disinflation process. Despite expectations around the February rate hike of 25 basis points likely being amongst the last, largely owing to a moderation around inflation, investors are yet to see evidence of this. This also leads to investors looking at funds with a shorter duration as these offer lower volatility. Moreover, an increased focus towards other asset classes, and the opening-up of newer avenues have also likely led to investors preferring these over debt fund categories. As the Indian market continue to witness growth, a change in the rate hike cycle will likely bring investors back to debt funds."

 

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Published: 10 Mar 2023, 09:51 PM IST
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