Mutual funds' flow into equities at two-year high

Auto ancillaries, airlines, chemicals, cement, financials, steel and textile sectors have been their favourites, data show

Domestic mutual funds (MFs) continue to pour money into equity markets, with their net flow hitting a record high during calendar year 2017 (CY17).

Till September 7, MFs have pumped in a net Rs 73,428 crore in equities, surpassing their previous high recorded two years ago. During the entire calendar year 2015, they had made a net investment of Rs 72,199 crore in equities. In CY15, MFs reported a net inflow of Rs 48,170 crore.

Their net investment so far in CY17 is 5.8 times higher than that of CY16 when they had put Rs 12,538 crore in equities, according to data with the Securities and Exchange Board of India.

The benchmark S&P BSE Sensex and the Nifty 50 have gained by about 20 per cent and 23 per cent, respectively, in the first nine months of CY17.

On the other hand, foreign portfolio investors (FPIs) have invested Rs 42,652 crore in the equity segment so far in CY17, NSDL data show. Their investment stood at around Rs 51,294 crore in the same period last year.

“A general fall in interest rates across savings products has seen investors flock to mutual funds, who in turn, deploy this cash in the equity markets. That apart, investors have become aware of the available financial products and plan their investments accordingly. All this has led to an increase in cash levels with the MFs,” said Ramnath Venkateswaran, fund manager (equity) at LIC Mutual Fund.

Among individual stocks, MFs have increased their stake by over one percentage point in the past six months in 165 firms, data analysis of 942 companies from the S&P BSE 500 and S&P BSE SmallCap index show. Auto ancillaries, airlines, chemicals, cement, financials, steel and textile sectors have been their favourites.

Analysts believe the sudden gush of liquidity into the markets seen earlier on the back of a drop in interest rates may not repeat itself. Even then, the overall flow of MFs and foreign investors will remain healthy and keep the markets buoyant, they say.

“The external flows are linked to the risk appetite. Investors the world over are chasing growth, and India is a prime candidate in this context. We believe India can deliver on the growth promise and the visibility of growth is reasonably high,” said Sanjay Mookim, India equity strategist at Bank of America Merrill Lynch.

In terms of sectors, Venkateswaran said the sectors that have done well over the past few years may now take a back seat and money may find its way into sectors such as pharmaceuticals that have been beaten down badly. Besides, he is bullish on banks with a higher exposure to corporate non-performing loans (NPLs) over the next two-three years. Utilities is also a sector he likes.