MFs set to deploy Rs 1.5 trillion in equities for second straight year

Active equity schemes have raked in a net Rs 1.3 trillion in the first 10 months this year

Mutual funds (MFs) are on course to pour at least Rs 1.5 trillion ($18 billion) into the domestic equity market for the second consecutive year.

So far this calendar year, domestic equity funds bought shares worth Rs 1.4 trillion after pumping in a record Rs 1.8 trillion last year.

Equity investment by mutual funds is tied to inflows they get in equity and hybrid schemes. While gross inflows into active equity schemes have been higher this year than in 2022, a surge in outflows has pushed net inflows lower, capping their ability to invest in the markets.

Active equity schemes have raked in a net Rs 1.3 trillion in the first 10 months of 2023, 17 per cent lower than the Rs 1.5 trillion during the same period in 2022. While gross inflows went up 15 per cent owing to the growing systematic investment plan (SIP) books, redemptions surged 42 per cent from Rs 1.65 trillion to Rs 2.3 trillion.

“While there is some moderation in monthly mutual fund flows, notably in small and midcap funds, we think domestic flows will continue to support the market and limit any large downside risk in case of global risks, especially in light of cash balances being still healthy and at long-term average levels,” observed a recent note by Goldman Sachs.

“Inflows via SIPs have remained strong so far supported by ongoing growth in (new) accounts, which is a noteworthy source of added stable demand,” the note added.

 

SIPs, the preferred investment route for retail investors, have brought in gross inflows of Rs 1.5 trillion between January and October this year as against Rs 1.2 trillion in the same period of 2022.

Underpinned by the SIP flows, MFs are set to close the year with significantly higher investment than the foreign portfolio investors (FPIs).
 

After pulling out over Rs 1.2 trillion in 2022, FPIs have invested a net of Rs 1.2 trillion in domestic equities so far this calendar year.

“In the past few years, in the absence of big FPI flows, a lot of credit has to be given to the MF industry for standing tall in the market as sustained buyers all through. This also reflects well on the investing universe of the industry, which is now recognising equity as an asset class of growth,” said Swarup Mohanty, vice-chairman and chief executive officer, Mirae Asset MF.

An improved MF return chart on the back of a sharp rally after March has ensured strong retail flows for the industry amid bouts of profit booking. The rally has been skewed towards smallcap and midcap stocks and resulted in higher demand for MF schemes investing in these.In 2023 (till December 1), the Nifty has gone up 11.9 per cent, while the Nifty Midcap 100 and Nifty Smallcap 100 have jumped 44.4 per cent and 58 per cent, respectively.

Smallcap funds have drawn the highest inflows in the last 12 months period, shows the data from the Association of Mutual Funds in India (Amfi). In the 12-month period (November 2022 to October 2023), smallcap funds have raked in net inflows of Rs 37,102 crore, while midcap funds have received Rs 21,993 crore. Largecap funds have seen a net outflow of Rs 4,060 crore.