MF inflows at record high

Fund managers put in Rs 50k cr in year's 1st half, more than combined investment of previous bull run

The Indian capital markets could see record-breaking inflows by mutual funds (MFs) this financial year. In the first half, they invested close to Rs 50,000 crore in Indian stocks. Till now, the highest was in 2014-15, when domestic fund houses pumped in Rs 40,722 crore into the stock market. This is on the back of record inflows into equity schemes from the country’s  individual investors over several months.

The overall net investment so far in 2015-16 is more than the cumulative investment during the entire previous bull run, between 2003-04 and 2007-08. MFs were net sellers every year between FY09 and FY14, following huge redemption pressures after the 2008 market meltdown.

Over the past 18 months, the situation has taken a sharp U-turn. Despite the recent market fall and increase in volatility, investors have continued to keep faith in equities, especially through the MF route.

“The recent fall in Indian shares, on the back of global events, threw opportunities for domestic investors to invest. We continue to follow a 'buy on dips' strategy from a long-term perspective," says S Naren, chief investment officer (CIO) at ICICI Prudential MF.

In September, fund managers bought shares worth Rs 9,000 crore. In August, a little over Rs 10,000 crore.

MFs have been playing quite a balancing role over the past 18 months. Especially on days when foreign institutional investors tend to sell, domestic investors are fast to grab the opportunity to buy. There have been several trading sessions in the recent past when fund managers put in as much as Rs 2,000 crore into stocks.

Prashant Jain, CIO at HDFC MF, says: "Our markets are in transition. The worst on the economic front is clearly behind us. In India, allocation to equities is still very low. Though volatile in the short term, equities outperform most other asset classes in the long term. It's unfortunate that ownership of stocks by Indians is down. Over long periods, equities have seldom disappointed, particularly in a fast growing economy like India. Equities are a great compounding machine and investors should assess and allocate one's risk capital to these."

Agrees Sunil Singhania, CIO (equities) at Reliance MF: "Despite the run-up in the past 15 months, domestic ownership of Indian equities remains near record low levels. There are early signs of a shift in domestic investors' preference towards equities. Given the pent demand for equities and rising attractiveness from an absolute and relative standpoint, domestic flows could rise substantially in the next three to five years."

There are nearly 10 million Systematic Investment Plans (SIPs) currently in the sector, mostly owned by retail investors. The average size of an SIP is about Rs 3,000. Since the Narendra Modi-led government came to power last year, about four million new equity folios have been opened.

Assets under management of the equity segment are nearly Rs 4 lakh crore. Two years before, it was Rs 1.7 lakh crore. Currently, the fund sector offers around 450 equity-related schemes to investors.