Equity MFs see redemption pressures mounting on market rally

Data released by AMFI show that equity mutual funds saw inflows of Rs 460 cr in Aug compared to Rs 1,800 cr outflows in the previous month

Even though monthly data for August has shown an uptick in inflows into equity schemes, fund managers are cautious about their outlook, saying the recent rally in the markets will result in redemption pressures.

The data released by the Association of Mutual Funds in India (AMFI) show that equity mutual funds saw inflows of Rs 460 crore in August compared to Rs 1,800 crore outflows in the previous month.

Interestingly, equity MFs were also net buyers in the equity market in August and bought stocks worth Rs 1,600 crore, making it the first month of positive net buying by mutual funds since June 2012.

"The equity category has seen some kind of inflows in August on the back of value buying. But, the inflow amount is too small to indicate any trend. In this context, I remain cautiously optimistic about the equity segment going ahead," Chief Executive Officer of LIC Nomura Mutual Fund Nilesh Sathe told PTI here.

He also said fund flows into the equity category are indication of portfolio churning rather than fresh addition to the existing investment.

The benchmark index Sensex had witnessed a volatile trade last month, with the index falling below 17,500 levels, on the back of possible withdrawal of US bond buying programme alongwith RBI tightening measures to contain rupee volatility.

"Despite market volatility, there were value buying by investors, which was reflected in the inflows," another fund manager of a mid-size fund house said, adding redemption pressure could be seen in the near-term as market has rallied in September with the Sensex regaining the 20,000 levels in five days of rally beginning September 4 when the new RBI governor Raghuram Rajan took over.

Meanwhile, an official from ICICI Prudential AMC said inflows will come in as clarity about the direction of macroeconomy emerges with more data flows from the government.

"The equity MF category as well as the market witnessed interest in value buying after the sharp downfalls by the equity market in August.

"The recent positive news flows  both on domestic and global front helped to improve sentiments in the market and has led to sharpest rise in Sensex in last four years. On account of this, some existing investors are likely book profits," EVP and head (retail and institutional business) of ICICI Prudential AMC, Raghav Iyengar, said.

He also said volatility would continue on account of global factors and pre-election period.

Equity investment will see a boost once some clarity emerges into the market regarding the direction of domestic economy, Iyengar added.