Domestic mutual funds (MFs) continue to pour money into equity markets, with their net flow crossing Rs 1-lakh crore mark during calendar year 2017 (CY17).
Till November 10, MFs pumped in a net Rs 102,810 crore in equities - up an over three-fold as compared to the previous year (CY16) when they had put Rs 29,374 crore in equities during the same period, Securities and Exchange Board of India (Sebi) data show.
On the other hand, foreign portfolio investors (FPIs) have invested Rs 48,190 crore in the equity segment so far in CY17, NSDL data show. Their investment stood at around Rs 43,280 crore in the same period last year.
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Given the abundant liquidity, S&P BSE Sensex and the Nifty 50 have rallied 23.7% and 24.4%, respectively thus far in CY17 and breached 33,866 and 10,490 levels in first week of November.
Experts attribute this surge in MF flows into equities to growing participation from retail investors, especially from small towns, and several measures taken to educate investors on benefits of investing in financial assets via the mutual fund route.
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"Over the last three years, returns from traditional investment opportunities, except financial assets, have been on a downward spiral. Government's push towards financial assets and the various investor education initiatives have all aided in propagating the concept of systematic investment plans (SIP) as a way of investing into capital markets. This led to MFs emerging as a preferred financial product, which has been one of the reasons for increased inflows," explains S Naren, executive director and chief investment officer (CIO) at ICICI Prudential AMC.
The road ahead
But, will these flows sustain going ahead? Experts do believe so. Though there can be aberrations in terms of a pull out in any specific month, unless there is a significant development that makes investors wary of the 'India story', flows - both domestic and foreign - will be abundant, they say.
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"The pace of inflows is likely sustain. Currently, only 2.9% of the Indian household is invested into mutual funds. Going forward, this should improve and keep flows steady. What can change the current course is any major global negative development which could impact the India story, leading to a change in investor sentiment towards equities. The other possibility that could impact equity inflows is the uptick in real estate rental yield," Naren says.
According to latest shareholding pattern filed with the stock exchanges, MFs have increased their holdings in 173 companies from the S&P BSE 500 index by more than one percentage point between January - September 2017. The index represents nearly 91% of the total market capitalisation (market-cap) on the Bombay Stock Exchange (BSE).
Jyotivardhan Jaipuria, founder and managing director, Veda Investment Managers, too, believes equities as percentage of household savings is expects this to go up.
"Alternate asset classes, especially real estate, are likely to give more sober returns going forward. Lastly, post demonetisation, GST and other measures likely to be taken by the government, we will see a reduction in black money that was essentially parked in gold and real estate. This should keep investor interest alive in the markets," he says.
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Among sectors, finance sector companies, including banks and non-banking financial companies (NBFCs), auto ancillaries, automobiles, cement, fertilisers, real estate and tyre companies cornered most of this MF money during the first nine months of CY17.
From an investment perspective, Lalit Nambiar, executive vice president and fund manager at UTI Mutual Fund still prefers the rural and capex cycle stories from a two-year horizon.
"Banks that have cleaned up their act are available cheaper now. Auto ancillaries, tractor and construction are the sectors that look interesting," he says.
As an investment strategy, IT, Pharma, Power PSUs and upstream oil operators are some of the pockets Naren of ICICI Prudential AMC is positive on.