Equity mutual fund inflows moderate on smallcap, midcap redemptions

Net inflows stood at Rs 14,090 crore on strong SIP flows in September

Equity mutual fund (MF) schemes experienced a slowdown in net inflows in September, largely due to increased redemptions from smallcap and midcap schemes. This was even as gross contributions via systematic investment plans reached an-time high of Rs 16,042 crore last month, according to data from the Association of Mutual Funds in India (Amfi).

Equity schemes saw net inflows of Rs 14,090 crore last month, 30 per cent less than Rs 20,250 crore in August, reflected Amfi data. Gross inflows, on the other hand, remained elevated at Rs 42,160 crore, thanks to record investments via the SIP route. 

Certain equity schemes saw a surge in outflows. Investors redeemed Rs 4,200 crore from smallcap schemes in September, the highest since at least January 2020. At the same time, fresh investments in these schemes continued to rise, reaching Rs 6,875 crore. Midcap funds also saw an increase in outflows by 17 per cent month-on-month to Rs 3,234 crore.

This surge in redemptions came amid concerns of over-valuation. According to some brokerages, valuations in the mid and smallcap segments have become stretched and less attractive compared to largecaps. Additionally, sharp selloffs in smallcap stocks during some trading sessions may have prompted investors to liquidate their holdings.

On September 12, the midcap and smallcap indices recorded their worst single-day fall in 2023. The Nifty Smallcap 100 plunged by 4.1 per cent, while the Nifty Midcap 100 declined by 3.1 per cent.

“The quantum of net flows in both smallcap and midcap as a category saw a decline compared to previous months. They were still among the highest recipients of net inflows. The dip could be attributed to profit-booking by investors, coupled with concerns regarding inflated valuations,” said Melvyn Santarita, analyst-manager research, Morningstar Investment Adviser India.

Despite giving up some gains after a strong start to the month, the key benchmark indices -- Nifty50 and Sensex -- ended with gains of 2 per cent and 1.5 per cent respectively in September. Meanwhile, the Nifty Smallcap 100 rose by 0.9 per cent and the Nifty Midcap 100 declined by 0.1 per cent.

The MF industry saw around a 2 per cent gain in average assets under management across schemes to Rs 47.8 trillion, thanks to strong SIP inflows and market support. This is despite over Rs 1 trillion net outflows from debt schemes.

Shorter-horizon debt schemes like liquid and money markets typically record steep outflows at the end of every quarter due to corporate withdrawals for advance tax payments.

In the first half of 2023-24 (FY24), the industry's monthly average AUM surged by 19 per cent to Rs 47.8 trillion. This growth is largely driven by a supportive equity market.

“The half yearly growth has been encouraging and we are optimistic that the trend will continue to grow. Irrespective of global headwinds, the Indian markets have shown resilience. Domestic institutional investors have been strongly driving market growth,” said N S Venkatesh, chief executive officer (CEO), Amfi.