Home / Opinion / Quick Edit /  A fall we need to watch

Though Indian stock markets have been staging a healthy rebound, the pressure on mutual funds only seems to be growing. According to data issued Monday by the Association of Mutual Funds in India, equity funds saw net outflows of 2,480 crores, the highest in more than four years. Contributions through systematic investment plans also slipped to 7,830.66 crore, although debt funds saw a huge jump in net inflows to 91,392 crore as against 2,862 crore in June.

Share prices have risen modestly in recent weeks, thanks mainly to investments by foreign portfolio investors. With global central banks pumping in large amounts of liquidity to tide over what is being described as the worst economic crisis in many decades, it’s likely that more of this money could find its way to emerging markets such as India in search of returns. Sustained flow of such overseas money has driven a wedge between India’s economic fundamentals and the performance of its stock markets.

Usually, rising stock markets should lead to greater equity participation, but the headwinds facing the global as well as Indian economy present serious challenges. That investors are pulling money out of equity funds suggests the stock market’s rally doesn’t inspire confidence in the economy. Rather, investors are using the rally as an opportunity to cash out before a fresh crisis hits. It’s no surprise then that gold and bonds have outclassed all other asset classes.

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