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Safety is in favour

Photo: Reuters
Photo: Reuters

With most advanced economies keeping their purse strings loose, such flows seem likely to go on for some time, potentially inflating asset prices in places like India. This could worsen not just the current divergence between stock prices and the true state of our economy, but also the accompanying risks

Equity mutual funds saw outflows for the fourth-straight month in October, according to data issued by the Association of Mutual Funds in India. Investors drew out as much as 2,724.95 crore from them, higher than the outflow of 734 crore in September. At the same time, investor flows into fixed income and debt-oriented mutual fund schemes rose significantly. Liquid schemes, for instance, saw net inflows of 19,582.70 crore.

Viewed together, the picture seems clear. Even though Indian stocks are on an uptrend, confidence in the rally does not seem to be too strong. That perhaps explains why investors are shying away from equity funds and parking money in relatively low-risk liquid schemes. A large influx of foreign capital chasing higher returns in emerging markets may deserve the credit for a big chunk of our stock gains. With most advanced economies keeping their purse strings loose, such flows seem likely to go on for some time, potentially inflating asset prices in places like India. This could worsen not just the current divergence between stock prices and the true state of our economy, but also the accompanying risks.

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