While redemption pressure was behind weak inflows, market rally after polls is seen boosting investment
Net outflows from credit risk funds rose to ₹4,155.80 crore in May from ₹1,253.28 crore in April
Equity mutual fund inflows in May shrank by more than half from a year ago, data released on Monday showed, due to uncertainty over the outcome of the 17th Lok Sabha election.
According to the Association of Mutual Funds in India (Amfi), net inflows into equity mutual funds in May was ₹4,968.43 crore, down 56.22% from ₹11,350 crore a year ago. In a small relief, May inflows were 17.4% higher from April, a month when inflows had plunged 64% to the lowest in 31 months on election uncertainty, rating downgrades and a rise in crude oil prices.
Amfi CEO N.S. Venkatesh attributed the weak inflows to redemption pressures as investors met their goals, and the annual vacation. However, he expects inflows to pick up as markets have rebounded after the elections.
Indian markets have been on the rise since the Narendra Modi-led coalition won a massive mandate to form the government for the second consecutive time. There is widespread optimism that a combination of monetary stimulus and structural reforms may help revive the economy. The index was up 6.42% between 15 and 31 May. In May, the benchmark Sensex rose 1.75%. In the year so far, Sensex has gained over 10%.
Domestic institutional investors including mutual funds and insurance companies who were net sellers of Indian equities till May bought shares worth ₹5316.32 crore. They were net sellers worth ₹16568.73 crore till April. Foreign institutional investors, which have been upbeat on India, bought Indian shares worth $1.4 billion in May.
IDFC AMC chief executive Vishal Kapoor said: “Post clarity for markets with a clear election mandate, it is encouraging that equity inflows saw an overall increase of 17% for the month of May, with a sharp increase in mid cap fund inflows which were up 160%, and small cap funds up 50%. We also saw a five-times month-on-month jump in inflows for focused funds reflecting an increasing risk appetite among investors."
Meanwhile, inflows from systematic investment plans (SIPs) saw a marginal slip in May. The total amount collected through SIPs in May was ₹8,183.09 crore as against ₹8,238 crore in April, according to Amfi data. SIPs allow people to invest a fixed amount in a mutual fund scheme periodically at fixed intervals.
Venkatesh said: “Continued retail investor confidence through SIPs has now set a new normal with monthly flows consistently crossing over ₹8,000 crore. The retail fund flows would now hereon, further strengthen on the back of political stability, promise of further economic reforms and improving macro-economic environment coupled with healthy corporate earnings growth."
Analysts said the next major domestic trigger is likely to be the union budget in early July, and an investor-friendly budget will help build further confidence in the market.
Meanwhile, net outflows from credit risk funds accelerated to ₹4,155.80 crore in May from ₹1,253.28 crore in April. Medium duration funds also saw outflows rising to ₹2,063.18 crore from ₹530.89 crore in April. Overnight funds on the other hand saw a jump in net inflows to ₹2,347.41 crore from ₹95.74 crore in the previous month. Banking and PSU debt funds saw a leap in flows to ₹3,381.82 crore in May from ₹2,792.15 crore in April.
Gautam Kalia, head-investment solutions, Sharekhan by BNP Paribas said: “Given the stress in some securities in the debt market, it is no surprise that clients are taking evasive action. Consequently, credit risk funds and medium duration funds have seen increasingly negative outflows while banking and PSU funds are seeing increasingly positive inflows."
“The flow data on the debt side shows a flight to safety essentially," said Srikanth Meenakshi, chief operating officer at Fundsindia, an online mutual fund investment platform. However, he sounded a note of caution on banking and PSU debt funds. “These funds are not by any means a refuge from the credit crisis. Some of these funds also had IL&FS exposure," he said.