 "equity funds")
Domestic equity mutual funds (MFs) and foreign portfolio investors (FPIs) continued to support Indian equities in 2021 with a combined net-buying of equities worth Rs 1.09 trillion. Equity MFs extended a bigger hand of support this year, with equities worth Rs 82,341 crore from January to December 22. And FPIs, despite their recent selling, have been net-buyers worth Rs 27,631 crore.
The strong buying by MFs was aided by net inflows of around Rs 71,600 crore in the current calendar year (2021, or CY21). In the first two months of CY21, equity funds had seen net outflows of Rs 13,787 crore, as investors continued to book profits at higher levels of the markets.
Since March, the flows into equity funds have remained buoyant. Equity funds saw the highest inflows in July at Rs 22,583.52 crore, followed by Rs 11,614.73 crore in November.
By virtue of systematic investment plans (SIPs), flows were robust into equity funds. From January to November, inflows through SIPs have been around Rs 1.02 trillion, reveals the Association of Mutual Funds (Amfi) data.
In the past three months, inflows through SIPs have remained over Rs 10,000 crore for each month. In November, SIPs saw record inflows of Rs 11,005 crore, shows the Amfi data.
Investors will continue investing in equity funds with subdued returns generated by debt funds for higher returns. In the past year, large-cap funds on average have given returns of 26.58 per cent. In comparison, mid-cap and small-cap funds have given average returns of 44.02 per cent and 61.64 per cent, respectively, according to the Value Research data.
"In the past few years, we have seen immense maturity by investors. There's no other attractive investment alternative to equity funds. Investors will continue to channel their savings through SIPs, even if there is some market volatility. We might see improved interest from passive funds in the future," said Jimmy Patel, managing director and chief executive officer (CEO), Quantum Asset Management Company.
This year, FPIs were net-buyers for six months and net-sellers in six months. They invested heavily into equities during the first three months (Rs 55,472 crore) in the January-March period. They sold equities worth Rs 12,613 crore in the next two months amid the onslaught of the second wave of the Covid-19 pandemic in India.
FPIs were net buyers in June and sellers in July. In August and September, they bought equities worth Rs 15,237 crore.
Since October, they have been net sellers. The FPI selling began as valuation concerns emerged after the indices hit all-time highs in October. Coupled with interest -rate concerns and the emergence of the Omicron variant, it led to sustained selling. Some of the sale was to invest in initial public offerings and other primary-market issuances. In December, FPIs bought equities worth Rs 13,576 crore from the primary markets, according to the National Securities Depository data.
"Some of these companies are new-age, and China has been a problem area for foreign investors because of delistings and regulations. That's the reason India has garnered some money from new issuances," said Andrew Holland, CEO, Avendus Capital Alternate Strategies.
Analysts said since India has been a large recipient of FPI flows, there is heightened selling, especially after the hawkish stance by central banks. Central banks of major economies, including the US, have announced their plans to withdraw monetary support and raise interest rates to fight inflation. The weakening of the rupee due to the rise in current account deficit is also tilted against India.
"There are a lot of gains which people had from India. They are still taking a little bit off the table and reallocating elsewhere where markets are cheaper," added Holland.
