Mutual funds pump in Rs one-lakh crore in equities in 18-months

This is the longest spell of net mutual fund inflows into the stock market in at least 15 years

Domestic mutual funds have been on a buying spree in the equity segment and have invested about Rs 1 lakh crore during the past 18 months even as foreign investors preferred to stay on the sidelines.

Following the victory of the Narendra Modi-led National Democratic Alliance in the general election held in May last year, mutual funds (MFs) have pumped in a net of Rs 1,00,523 crore between June 2014 and November 2015, data show. This is for the 19th month in row that they have invested in equities — the longest spell of net mutual fund inflows into the stock market in about 15 years. Foreign institutional investors (FIIs), on the other hand, turned net sellers in five out of the past seven months ahead of the US Federal Reserve meetings on December 15-16.

Nilesh Shah, managing director, Kotak Mahindra Asset Management, explains: “Earlier, investors used to put in a lump-sum amount, but now they are investing through systematic investment plans (SIPs). Moreover, the outlook for gold and real estate is far more negative than equities. Given all this, we are hopeful that the domestic participation in mutual funds will increase.”

Gautam Sinha Roy, vice-president and fund manager, Motilal Oswal AMC, too, believes the inflow from domestic mutual funds is likely to continue going ahead, as domestic investors seem to be gradually moving from physical assets to financial assets.

“As inflation comes down, there is a potential for a cut in interest rates. In such an environment, people look for investment options where they can get high yield. Real estate and gold have been favourites with Indian investors after Lehman’s collapse. With inflation coming down, we believe these asset classes will struggle to retain their earlier seen growth rates of the past few years,” Roy adds.

Assets under management

The Indian mutual fund sector’s average AUM have also scaled new highs, primarily boosted by a surge in equity AUM. In the fund category, for instance, the AUM stood at Rs 3,56,452 crore, or Rs 3.56 lakh crore, as of October 2015 against Rs 1,89,200 crore at the end of May 2014, latest data from the Association of Mutual Funds in India (Amfi) show.

Mutual funds’ exposure to financials including banks, automobiles, capital goods, petroleum products, pharmaceuticals, software and industrial products sectors increased during the period, Securities and Exchange Board of India (Sebi) data suggest.

“From a sectoral viewpoint, most of the sectors have been priced for perfection. I think going ahead, it will be more stock-specific stories. With a caveat that one does bottom-up analysis, the cement sector should do well going ahead. The urban consumption theme also looks good in the backdrop of the 7th Pay Commission payout. Another segment that should do well (on a bottom-up basis) over the next 12-24 months is the non-leveraged companies in construction and capital goods,” says Shah of Kotak.

Vikaas M Sachdeva, CEO of Edelweiss Asset Management, also believes that on an overall basis, investors’ interest in the capital markets is likely to increase.

“Currently, there are 8.3 million investors with around Rs 2,400 crore of SIP per month. My personal belief is that this will probably grow at least three-fold in the next three years. This should give you a fair idea of the mutual fund flows. For the next few quarters, we would be more focused on the domestic consumption plays rather than export-oriented stories,” he says.