Investors shift away from debt products

Equities will do better in coming months as corporate earnings are improving & reforms are going ahead

With the stock markets soaring high, the attraction for retail investors of public issues in corporate bonds and debt mutual funds (MFs) is seen as reducing. Companies are coming up with Initial Public Offerings (IPOs), while fund houses are back to launching equity New Fund Offers (NFOs).

Data also shows IPOs getting subscribed multiple times and inflows in equity MFs. Income funds, which primarily invest in bonds, are seeing outflows.

“Equities will do better than debt as they are better placed. Even in the long term, they do better. On a 10-year cumulative basis, there is a difference of 6-10 per cent in the returns. Whenever markets improve, more investors gets attracted to equities. We are seeing that retail investors are moving from fixed income to equities gradually,” said Anand Rathi, chairman, Anand Rathi Financial Services.

He says equities will do better in the coming months as corporate earnings are improving, reforms are going ahead and expectations of the government are improving. “All these factors add to the attraction towards the equities market,” he added.

Since the start of this financial year (April), the BSE Sensex has gained 28.3 per cent and the National Stock Exchange's Nifty has gained 29 per cent. The recent IPO of Snowman Logistics was subscribed 59.75 times.

“The returns in bonds are much less than the returns investors can get in equities these days. In fact, even if investors decide to buy tax-free bonds, a big hit last year, the returns will not be much,” said Arvind Konar, head of fixed income, Almondz Global Securities. Tax-free bonds can be bought from the secondary market.

Data from the Association of Mutual Funds in India shows net inflows of Rs 10,815 crore in equity MFs in July, compared to outflows of Rs 10,080 crore in income funds and a meagre Rs 110 crore into gilt funds. “We are seeing shifts happening in the retail side from fixed income funds to equities,” said Dwijendra Srivastava, chief investment officer (debt) at Sundaram MF.

So far this year, fund houses have launched 33 NFOs in the equity category, the highest since 2008, when 41 new offers had been made.

On public issues of bonds, data from the Securities and Exchange Board of India show that in the current financial year, Rs 3,909 crore has been mobilised. Typically, most issuances hit the streets in the second half of every financial year. In 2013-14, companies had raised Rs 42,383 crore through public issue of bonds. This includes the amount mobilised through tax-free bonds, a highly successful investment avenue last year. They aren’t there this year.

Data from Value Research shows the one-year returns of equity MFs are much better than debt funds. Still, experts say, a certain class of investors will stick to fixed income products, as their risk appetites are less.