After 5 months of net outflows, large-caps finally turn a corner in October

Aside from an increase in net flows across all categories of equity funds, small cap mutual fund (MF) schemes got inflows worth Rs 4,495 crore in October 2023, up from Rs 2,678 crore in September

The large cap category of mutual funds,  which has witnessed five consecutive months of net outflows, finally turned the corner  as it garnered Rs 723.8 crore in October,  according to data released by the Association of Mutual Funds in India (Amfi). In April, the category had seen Rs 52.6 crore in net inflows.

“The large-cap category witnessed a noteworthy resurgence, reflecting broader market recovery,” said NS Venkatesh, CEO of Amfi.

Equity funds mark 32nd consecutive months of net inflows

Equity-oriented funds continued to witness net inflows in October 2023, marking the 32nd consecutive month of net inflows. The segment witnessed net inflows of Rs 19,957 crore in October 2023, around 41% higher than September 2023 (Rs 14,091 crore). 

The equity segment was also aided by 4 new fund launches in October which garnered Rs 2,996 crore. None of the equity categories witnessed net outflows in October.

Small-caps see the highest inflows, followed by thematic funds

Among the equity asset class, the small-cap category saw the highest inflows to Rs 4,495 crore during the month. 

"While the flows in this category have been consistently high over the past many months, in October it was also aided by the launch of Baroda BNP Paribas Small cap fund which garnered Rs 1,103 crore. The second highest net inflows were seen in the Sectoral / Thematic funds category which received Rs 3,896.7 crore. HDFC Pharma and Healthcare Fund and UTI Innovation Fund belonging to this category cumulatively garnered Rs 918 crore during their NFO period," said Melvyn Santarita, Analyst - Manager Research, Morningstar Investment.

After witnessing a dip in the quantum of flows in September compared to August, both the small-cap and the midcap bounced back with robust net inflows in October.

 "It appears that retail investors think there is still juice left in small-cap funds. Yes, some mutual fund houses have stopped or limited inflows in small-cap funds because they have been finding it tough to reply to the additional flows into the markets, at these levels. Investors should take caution when investing in small-cap funds. They must do their own due diligence and only then take the decision to invest in small-cap funds at these levels,"said Venkatesh.

Hybrid funds continued to experience healthy net inflows led by arbitrage funds and multi-asset funds

Hybrid funds continued to show resilience, with arbitrage funds (Rs 5,523 crore) and multi-asset allocation funds (Rs 2,410 crore) leading the way.
"This trend reflects the prevalent risk-off sentiment in the market, with investors seeking to diversify their investments while maintaining a focus on capital protection. Domestic flows continue to prove structural. Interestingly, SIPs now account for a larger part of inflows (vs one-time investment) and are more structural. This provides the market with a lot of strength," said Akhil Chaturvedi, Chief Business Officer, Motilal Oswal AMC.

Mid-cap receives second-highest net inflows
The Midcap category received its second-highest net flows in terms of quantum over a monthly period- Rs 2,408.9 crore. The same was true for the small-cap category as well which saw its second-highest net inflows in October at Rs 4,495 crore, aided by the launch of a new fund.

Both the midcap and the small-cap indexes have seen a sharp rally over the last six months and one year. Consequently, investors have also flocked to this category with ever-increasing flows. 

Investors can ride the volatility by sticking to SIP route

"Investors should note that while both the midcap and the small-cap categories have the potential to deliver good returns, these categories inherently are volatile with sharp drawdown risks. Therefore, investors should have a long-term time horizon while investing in these categories. Opting to invest in these categories via the SIP route is a good way by which investors can ride the volatility whilst dollar cost averaging over long periods," said Santarita.

Passive funds as a category (Index and ETFs) continue to see robust net inflows every month.
 
Gold ETF inflows rise 
The quantum of net flows in Gold ETFs rose to Rs 841 crore in October from Rs 175 crore it received in September. With ongoing geo-political tensions, fear of continued hikes in interest rates in the US, inflation still higher than expectations, and growth rate slowing down, the appeal of Gold as a safe haven and hedge against inflation is expected to continue.

"Gold prices in recent times have come off from its all-time high levels, thereby providing some buying opportunity, particularly after a sharp rally it witnessed since March this year," said Santarita.

After two consecutive months of net outflows, Debt-oriented funds witnessed inflows

Debt funds witnessed inflows amounting to Rs 42,634 crore in October. In September these funds saw a net outflow of Rs 101,512 crore.

"The substantial inflows in October could be attributed to the increased flows in the liquid fund category," said Nehal Meshram, Senior Analyst - Manager Research, Morningstar.

Liquid funds saw the highest net inflow of Rs 32,964 crore as against the net outflow of Rs 74,177 crore in September. 

In October, all debt categories, except for overnight funds, low-duration funds, medium-duration funds, credit risk funds, and banking & PSU funds, witnessed inflows.
 

"Investor sentiment towards the Gilt Fund category was favourable during the month as the category witnessed net flows of Rs 2,000 crore. This could be attributed to investors opting to invest in government papers offering attractive yields in anticipation of a change in interest rate cycle in future," said Meshram.

SIP flows at all-time high

The monthly net flows through systematic investment plans or SIPs came quite close to the Rs 17,000 crore mark and was pegged at Rs 16,928 crore in October.  The mutual fund industry’s total assets under management (AUM) were pegged at Rs 46.72 lakh crore, higher than the previous month’s Rs 46.58 lakh crore.  

1. The number of SIP accounts stood at highest ever at  7,30,02,604   for October 2023 compared to  7,12,93,738 in September 2023
2. The SIP AUM stood at ₹ 8,59,923.86   for October 2023, compared to ₹   8,70,363.38 crores for September 2023.
3. The number of net SIPs added in October 2023 was 17,08,866, which is the highest till date
4. Number of new SIPs registered in October 2023 were 34,66,354

“The SIP numbers reflect strong growth in the SIP book and the trust reposed by retail investors in mutual funds as an investment vehicle and SIP as a route to investment into mutual funds. We are confident of reaching Rs 17,000 crore in November,” said Venkatesh. 

"The SIP flow increased to all all-time high. This is a structural change of savings habits through SIP and it is in good momentum. Small-cap and mid cap along with thematic & multi-cap and flexi-cap funds find attraction as investors used the correction happened in October as an opportunity to add. Decent corporate earnings also prompted investors to be positive on the market.Arbitrage funds continue to find investors' interest as spread rollover remains attractive along with tax arbitrage over other short term parking options," said Mukesh kochar, National Head of Wealth at AUM Capital.