Equity mutual funds may log inflows for a second consecutive month

Key categories see a jump in assets; fund managers step up buying in April

Equity mutual funds (MFs) are likely to register net inflows for the second consecutive month, in April. But persistent volatility might have put a cap on fresh investments.
 
While the official data release is a week away, there are tell-tale signs of another positive month for the Rs 32-trillion mutual fund industry.
 
Key equity scheme categories have seen an uptick in assets under management (AUM) in April. Also, industry players say redemption pressure has eased as some investors used the weakness in the market as buying opportunity. This reflects in MF equity purchases last month.
 
“In April, we have not seen any major redemption and systematic investment plan (SIP) book has remained strong; so, I think it is likely to be a positive month,” said D P Singh, chief business officer at SBI MF, the country’s largest fund house.
 
Equity-oriented schemes saw net inflows of over Rs 9,100 crore in March, after a gap of eight months. In the period between July 2020 and February this year, such schemes saw cumulative net outflows of Rs 52,725 crore, even as the benchmark Sensex surged more than 40 per cent during this period.
 
Most equity sub-categories have seen an increase in AUM on a month-on-month basis in April, even as the markets ended flat. Categories like large-cap funds, flexi-cap funds, and mid-cap funds have seen a steady increase in assets.
 
MFs were net buyers in the cash market for the second consecutive month. In April, they bought shares worth nearly Rs 6,000 crore, providing some counterbalance to outflows by overseas investors. Foreign portfolio investors (FPIs) sold shares worth nearly Rs 14,000 crore in April -- most since March 2020 when the Covid-19 pandemic first took hold.
 

Domestic equity fund managers had pulled out around Rs 1.23 trillion from Indian stocks amid consistent outflows between July 2020 and February 2021 because of redemption pressure.
 
“In the months prior to March, gross sales were intact, but redemptions were high. In the last two months, it seems redemptions have slowed down, and gross sales have continued to remain strong,” observed Swarup Mohanty, chief executive officer, Mirae Asset Management Company (AMC).
 
Net inflow is the difference between funds mobilised and redemptions in a particular month.
 
Among the categories that saw the biggest jump in assets are small-cap and mid-cap. The small-cap fund category saw its AUM increase from Rs 68,616 crore at the end of March 2021 to Rs 71,619 crore, shows the data from Association of Mutual Funds in India (Amfi). The mid-cap segment saw its AUM increase by Rs 2,998 crore to Rs 1.19 trillion in April.
 
The broader markets had outperformed in April. The BSE Smallcap and the BSE MidCap indices rose 4.9 per cent and 0.6 per cent, respectively, even as the Sensex fell 1.5 per cent.
 
Market participants say that while fresh money may not have flown in April, SIP books remain strong as several investors had started coming in from March.
 
In March, the industry had registered 1.67 million new SIPs – the highest for 2020-21 and 42 per cent more than the monthly average for the financial year.
 
The number of SIPs discontinued also fell to 0.71 million in March, from 0.79 million in the previous month. Total contribution through the SIP route also rose to Rs 9,182 crore in March compared to Rs 7,528 crore seen in February. Officials peg the SIP book to remain around Rs 8,500 crore even in April.
 
However, fund houses are wary of recent volatility in the markets triggered by the worsening Covid situation in the country.
 
“If the volatility picks up due to the second wave, the industry may once again see some negative sales. We were expecting lump-sum investors to enter the industry, but if the markets remain unstable, they won’t enter equity funds,” said a CEO of the mid-size fund house.