Retail investments into Indian shares increase despite tough markets

By Karen Rebelo

MUMBAI (Reuters) - Investments into Indian mutual funds surged in August from July even as share markets posted their worst month in nearly four years, signalling the continued retail support for equities despite a deteriorating outlook.

Investments into equity mutual funds rose 63 percent to 96.25 billion rupees ($1.44 billion) last month from July, marking a 16th consecutive month of inflows, according to data out on Monday from Association of Mutual Funds in India.

The data is likely to provide some comfort after a tough August for equities as turmoil in China spread to global markets: Nifty fell 6.6 percent last month, its worst performance since November 2011.

The purchases by retail investors contrast sharply with the behaviour of foreign investors who sold a net 168.77 billion rupees ($2.53 billion) in Indian shares in August, their highest monthly sales on record.

Fund managers say many retail investors are ploughing money into stocks as part of long-term allocations such as via monthly instalment plans. Indian households own only about $400 billion in equities, compared with $1.1 trillion in bank fixed deposits and $1 trillion in gold, according to Morgan Stanley.

"What you're going to now see over the next five years will be very different from the last fifty years, in terms of the allocation of saving of households towards various asset classes," said Anand Shah, executive director & chief investment officer at BNP Paribas Mutual Fund.

The data has been keenly awaited as investors sought evidence that retail investors will help counter any continued sales by foreign investors amid a deteriorating outlook given worries about China's economy and expected U.S. interest rate hikes.

But domestic factors are seen as more positive, given continued optimism that Prime Minister Narendra Modi will implement policy reforms, and expectations the Reserve Bank of India will cut interest rates for the fourth time this year to help kickstart a struggling economy.

($1 = 66.8203 rupees)

(Additional reporting by Himank Sharma; Editing by Rafael Nam and Toby Chopra)