Mutual fund ownership of BSE 500 companies at new high

Equity inflows, including equity component of balanced funds, rose to all-time high of Rs 18,200 cr

Aggregate domestic mutual fund ownership of BSE 500 companies has touched a new high, rising from a low of 3 per cent in March 2014 to 6 per cent as of June 2017.

The rise in ownership has been driven by record inflows through systematic investment plans into equity schemes, leading to consistent net buying from asset management companies in Indian stocks, said a note put out by Deutsche Bank.

Total equity inflows, including the equity component of balanced funds, rose to an all-time high of Rs 18, 200 crore or $2.8 billion in July.

"The accelerating momentum of inflows into the equity schemes of mutual funds indicates that the financialisation of the domestic savings cycle in India which began in earnest in 2014 is becoming deeply entrenched," said Abhay Lajjawala, research analyst, Deutsche Bank.

"The inflows reduce the vulnerability of Indian equities to external developments and also reduces the cost of capital for domestic companies," he added.

Compiled by BS Research Bureau

According to the note, the absolute holding of domestic mutual funds and domestic insurance companies remains at 11 per cent, significantly lower than that of foreign portfolio investors at 21 per cent.

Historically, Foreign Portfolio Investments (FPIs) have been the dominant market price-setters, given their size and trading patterns in India. The past couple of years have indicated a change, with domestic institutional investors (DII) flows increasingly being the primary driver of market direction.

DIIs have pumped in excess of Rs 1.28 lakh crore in the past three years, mostly led by the robust investment from mutual funds (MFs). This compares with inflows of Rs 1.33 lakh crore from FPIs during the period.

Financials, industrials and consumer discretionary account for almost 60 per cent of mutual funds' ownership value in the BSE 500 companies, as of June 30, 2017, as per the Deutsche report. Sectors with relatively lower ownership include real estate, telecom and utilities. Financials, utilities and healthcare are over-owned, while consumer staples, energy and IT services are under-owned sectors.

"An equity investment culture is rising and is taking a more formal form. Most new-age investors are professionals? given their lack of expertise, resources and time, these investors are investing through insurance schemes and MFs," said a recent note by foreign brokerage Jefferies.