Mutual fund managers churn portfolios, go slow on purchase of equities

With benchmark indices hovering near record highs, mutual fund managers have slowed down their equity purchases.

Fund houses bought shares worth Rs 38.1 billion in August, the lowest since February 2017. This is similar to purchases of Rs 39 billion made last month. Net investments dropped 58 per cent over June’s purchases of Rs 92 billion, and 67 per cent lower than the one-year monthly average of Rs 103 billion.

Experts suggest that gross inflows have slowed down as wealthy investors, who are more sensitive to market swings and volatility, have started churning their portfolios.

In July, equity funds (including ELSS) witnessed net inflows of Rs 94.52 billion, down 2.15 per cent month-on-month, and 25.7 per cent year-on-year. Volatility in the broader equity markets, due to intensifying global trade war concerns, led to the downside. In 2018, MFs have net invested Rs 763 billion into Indian equities, compared to outflows of Rs 33 billion from foreign portfolio investors.

The surge in domestic institutional equity inflows has begun insulating the Indian equity market, which has been largely determined by the velocity of overseas inflows so far. 

Historically, FPIs have been the dominant market price-setters, given their size and trading patterns. However, the last two years have indicated a change with domestic institutional investor (DII) flows increasingly being the primary market drivers. The record flows into equity MF schemes, through monthly SIPs, have been particularly encouraging. With more than 100 per cent growth in two years, SIPs’ contribution was Rs 75.54 billion in June, driven by investor awareness campaigns and strong participation of retail investors, said a note by Icra.

The financialisation of savings, triggered by demonetisation, has also supported the trend. The rise in share of domestic investors reduces dependence on the more-volatile foreign inflow.

Experts believe the time is ripe for industry to concentrate on B30 centres and beyond. “There is a need for accelerated growth in geographical reach of MFs, and to bring in long-term money from smaller towns. This is also necessary, given there is an overall policy focus to channelise more household savings towards financial assets,” Sebi chairman Ajay Tyagi had said at an event recently.