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The stock markets have seen a time correction over the past five years, that is, the markets have been rangebound between 18,000 and 20,000 levels. The compounded annual growth rate (CAGR) of Sensex between January 2008 and October 2013 is down 86%. Between January 2008 and January 2013, the CAGR growth for Sensex is flat also at 0.21%.
Debt products like the bank deposits have been giving better returns, at an average of 8% annually. This has led to many investors losing faith in equities for returns booster. And the investors are looking at selling on rallies, buying on dips to make money.
Says Sundeep Sikka, chief executive officer of Reliance Mutual Fund, “Investors have matured over a period of time. When markets have moved up, the industry has seen higher redemption. However, when markets have fallen investors have bought but not as quickly.”
According to data compiled by Business Standard Research Bureau, equity funds saw net outflows in eleven months in the calendar year 2012. In 2012, the net outflows from equity funds stood at Rs 14,148 crore or an average of Rs 1,179 crore a month. This when the Bombay Stock Exchange's Sensitive Index or Sensex gained 26%. In 2013 till August, the net outflows from equity funds stood at Rs 1,995 crore or an average of Rs 166.25 crore a month when the Sensex returned five%.
In January 2013 the Sensex was up 1.50% and the mutual fund industry saw net outflows of Rs 2,501 crore. In March, Sensex was marginally in the red (down 0.50%) and mutual funds saw inflows of Rs 514 crore. Sensex was flat and May saw outflows of Rs 2,910 crore. In June, mutual funds saw inflows worth Rs 937 crore and the Sensex was down one%. In August, when Sensex fell nearly four% and the currency depreciated close to nine%, mutual fund industry saw net inflows of Rs 467 crore.
A Balasubramaniam, chief executive officer of Birla SunLife Asset Management Company says, “But inflows are going to only select top fund houses. Investments are mostly through the systematic route. Fresh lumpsum inflows are not coming.”
According to Navneet Munot, chief investment officer - equity at SBI Mutual Fund, investors who are selling and those who are buying are two different sets. Most of the investors who redeemed in 2012 are those who have stayed in the instrument since 2007-2008. They saw the opportunity to book profits. And those buying in are either new investors or those who had exited equity funds earlier.
“Then, there would be a set of investors who are timing mutual fund investments and churning frequently on rallies and dips,” Munot adds.
While mature investors are a good sign, the present slowdown in the market has led to the definition of long-term getting extended. Typically, investment experts refer to fiver years or more as long-term investment period. But, the present slowdown has left fund managers fielding queries from investors.
“It is getting difficult to convince investors to invest for five years or more to reap returns benefit. They are jittery because the present lull period does not encourage them to believe the equity growth story,” laments a fund manager. “Now, we try to convince by saying invest for a year extend if you are happy with the returns then because we can't chart out the market course,” he adds.
But most other mutual fund expert try to play down the worry by saying that this is just a one-off. “There was a lull period even between 2001 and 2004. Such patches keep coming in equity market cycle. And after each such period we've seen returns come back with vengeance. Persistency of mutual fund investors stands at around 1,000 days or close to three years,” says Balasubramaniam.
