Retail investors go for crash lessons

In contrast to fleeing from equities after 2008, they’re putting money into picking low-priced stocks.

Indian retail investors seem not in a mood to repeat what they did during the previous global financial crisis, by not investing when markets had crashed.

Foreign institutional investors (FIIs) net-sold shares worth Rs 10,000 crore or $2.39 billion last month. Retail investors accessing equity markets through the mutual fund (MF) route chose to do the opposite. Domestic investors pumped in close to Rs 2,000 crore in equity schemes (including equity-linked savings schemes) during August, which took fund managers by surprise. This marks the highest monthly net inflow in equity funds so far in the current financial year.

 

INFLOWS/OUTFLOWS In August
Category	Net Inflow/(Outflow)
Income	-6,925
Equity	1,942
Balanced	210
Liquid/Money market	-10,066
Gilt	-86
ELSS	44
Gold ETFs	494
Other ETFs	-147
Fund of Funds Investing Overseas	-63
Total	-14,597
All figures in Rs crore                           Source : Amfi

"There were no redemptions at all," says Gopal Agrawal, chief investment officer (CIO) of Mirae Asset Global Investments (India). Rather, he adds, people chose to invest more when markets were trading lower.

According to the fund managers, investors have leant from what happened in 2009. They say investors preferred not only to remain invested but also increased their investments in equities.

Navneet Munot, CIO at SBI Mutual Fund, says: “Investors are far more mature now. In fact, over the past three years, domestic investors maintained an underweight call on equities but now they are looking to equities.” Says Vetri Subramaniam, head of equities at Religare Mutual Fund. “There is a sense that investors are buying at dips, but it is too early to say whether it will emerge as a trend.”

In 2008-09, the annual net investment in equity MFs was merely Rs 1,056 crore. It worsened in 2009-10, when it almost halved to Rs 595 crore. The worst was in 2010-11, when net investment plunged deep into negative territory and the industry saw redemptions of units worth Rs 13,500 crore in the year.

The last two years saw equity markets reclaim their previous highs but since retail investors did not invest, they could not reap the benefits of the market rally. Post-recession, investors have seen the recovering markets in 2009, adds Agrawal. "They understand that economic turmoil is due to global factors. Once the markets recover, they will see growth in value of their investments," he says. According to Dhruva Chatterji, senior analyst at fund tracking firm MorningStar India, "Value-cautious investors are coming back. They are more comfortable with the valuations of the Indian markets."

Fund managers, however, say the flow of funds is mainly coming from systematic investment plans (SIPs). "There is a dramatic rise in the number of SIPs in the industry," says Agrawal.

In August, industry players bought shares worth Rs 2,525 crore, the highest in last three years. Such aggressive buying by MFs was last seen in June 2008, when managers pumped in Rs 3,179 crore.

Income funds saw a redemption of Rs 6,925 crore, while liquid/money market schemes witnessed Rs 10,066 crore going out. Investors remained bullish on gold exchange-traded funds (ETFs), as the category saw a net inflow of Rs 494 crore. Despite good inflows in equities and gold ETFs, industry's overall redemption from all categories stood at Rs 14,597 crore in August.