Mutual funds start equity taper towards year-end

Average monthly investment drops

Mutual fund investments in stock markets have begun to cool in the past two months. After investing an average Rs 8,200 crore each in the first six months of the financial year, mutual fund managers invested just an average Rs 3,600 crore in October and November.

The drop in investment comes amid weakness in stock markets due to earnings disappointment and concerns around delay in reforms. Also, gross redemptions from equity schemes have been on the rise, providing less leg-room for fund managers for fresh investment in stocks.

In October, fund managers invested less than Rs 3,000 crore, while so far this month they have net-bought shares worth around Rs 4,200 crore. The investment numbers have come off the clip, as in the preceding three months to October, they had invested a robust Rs 8,700 crore each month.

Fund managers said they have turned cautious following Bharatiya Janata Party's setback in Bihar polls and prolonged delay in corporate earnings.

Weakness in global market, too, is weighing on investor sentiment. S N Lahiri, chief investment officer (CIO) at L&T Mutual Fund, said, "Today, we have a more challenging external environment, where growth seems to have come off quite significantly and this seems an additional challenge for the government."

Mutual fund investments are seen as a key support to the market at a time when foreign flows this year are on course to be the lowest in five years.

"Despite negative sentiments, domestic mutual funds have continued to receive strong inflows from individual investors. They have seen 18 consecutive months of inflows worth $18 billion. We continue to expect this trend to continue, but at a slower pace, at least over the near term on expectations of economic recovery," said Bank of America-Merrill Lynch in a report dated November 24.

So far this year, mutual funds have invested Rs 65,000 crore in Indian stocks. In comparison, foreign institutional investors (FIIs) have invested just Rs 21,351 crore during the same period. In 2014, FIIs had pumped in Rs 97,054 crore. The benchmark indices this year are down six per cent after a 30 per cent rally last year.

"Some of the inflows have certainly dried up which is reflecting in fund managers' investment quantum. There are lot more concerns now going forward - we are not expecting any further rate cuts from the RBI, interest rate hike by the US Fed could be another possible blow. If the continuous muted corporate earnings do not improve, I will not be surprised if I am forced shuffle the portfolios. Though, as of now we have marginally increased our cash levels but we are comfortable as we are invested in good quality companies," said head of equities of a top mutual fund house.

Till October, the gross sales in the equity segment has surpassed Rs 1 trillion. However, at the same time what is worth noticing is the fact that gross redemptions too are about Rs 44,000 crore - a sizeable figure. New fund offers (NFOs) have considerably slowed down as well.

"Strengthening US dollar, falling commodities and economic slowdown are putting tremendous pressure on emerging market currencies and equities. India outperformed its emerging market peers in the first leg; but it can't remain completely insulated as emerging market funds continue to witness further redemptions," said Navneet Munot, CIO, SBI Mutual Fund.