MFs see repeat of 2003-08 bull run

Equity investments this year cumulatively 80% of all flows in those 5 yrs; upbeat fund managers see nothing to stop the pace from accelerating

The investments by fund houses in the stock market so far this financial year total almost 80 per cent of what they had cumulatively invested during the previous bull run between 2003 and 2008.

Fund houses have seen robust investor flows and little redemption pressures in the past three quarters. Their managers expect the ‘India growth story’ to continue over the next five years and are positioning their investments accordingly, said experts.

Between April and December, the first nine months of this financial year, mutual funds (MFs) made a net investment of Rs 32,380 crore. This is, as mentioned earlier, almost 80 per cent of what they'd invested during the 2003-08 bull run, of Rs 41,425 crore, when the BSE exchange's Sensex benchmark had risen from 3,200 to 20,800.

The Indian market has risen a little over 20 per cent since April. Most of the investment by fund managers have gone to cyclical stocks, including banks and automobiles. Investors are betting on themes that are likely to benefit from the new government's reform push and recovery in the economy.

Sunil Singhania, chief investment officer (CIO), equities, Reliance MF, said: “Net investments by equity fund managers have been the highest in history. But we have merely scratched the surface. India's total household savings are 25 per cent of a $2-trillion economy size, which is $500 billion. If even five per cent of it were to come to equity, it’s $25 billion. And, in 2014, we have not even seen $5-6 billion coming in. So, the sky is the limit. There is big potential for investing in financial assets, including equities.”

Put together, between April and December, net inflow in the equity category crossed Rs 50,000 crore. By a rough estimate, fund houses could be left with a cash surplus of nearly Rs 10,000 crore, which many hope will be handy if there's a flight of capital from investors abroad.

In recent months, fund managers followed a 'buy on dips' strategy. Whenever the market saw a bout of correction, fund managers turned aggressive buyers. As in Tuesday's 855-point fall in the Sensex, when fund houses bought shares worth Rs 200 crore, even as foreign investors pulled out a little more than Rs 1,000 crore. There have been at least three occasions in the past few months when fund managers bought shares worth Rs 1,000 crore or more on a single trading day, amid weak market sentiment.

Prashant Jain, CIO, HDFC MF, says, “The worst on the economic front in India is clearly behind us. GDP (gross domestic product) growth is improving, the current account deficit has narrowed sharply, the fiscal deficit is slowly but surely moderating, inflation is steadily coming down, with visible moderation in the key constituents of food and fuel. Lower interest rates are, thus, a natural corollary over time. Given the likely recovery in the capital expenditure cycle over the next few years, India should emerge as not only one of the largest but the fastest growing economy as well.”