Investments into equity MFs seen gathering pace in May, shows data

Investments in equity mutual fund (MF) inflows have likely rebound in May after remaining subdued over the previous two months, if the sharp increase in secondary market purchases by fund managers is any indication.

 

In May, MFs’ net equity buying nearly trebled compared to April. MFs together bought ₹49,108 crore worth of shares in May, the highest in four months.

 

The uptick in inflows comes amid easing volatility in the equity market. After five consecutive months of decline, domestic benchmark indices have logged gains over the past three months. In May, the Nifty 50 rose 1.7 per cent.

 

The quantum of net equity buying by MFs also depends on factors like changes in the cash levels of equity schemes.

 

Equity MF schemes were holding record amounts of cash at the start of May as fund managers continued with a restrained approach amid global trade uncertainties. Cash holdings in equity MF schemes rose for the fifth straight month in April to 6.1 per cent of total assets under management, according to a report by BNP Paribas.

 

At the end of April, there were four large fund houses with cash holdings of over 10 per cent. At least one of them — Quant MF — trimmed its cash holding during May. Cash in its flexicap scheme came down from close to 10 per cent in April to 1 per cent in May. Most of its other schemes also reported lower cash levels in the latest factsheet. Other fund houses are yet to release their latest factsheets or portfolios. 

 

The equity buying data is also subject to inflows and outflows in hybrid schemes and changes in equity allocation within these schemes.

 

The turnaround has been led by a revival in foreign portfolio investor (FPI) inflows. In May, FPIs bought equities worth ₹14,683 crore, the highest in nine months.

 

According to analysts, while risks to corporate earnings growth remain, a strong domestic macroeconomic environment and resilient domestic flows make a case for domestic equities.

 

“The Indian equity markets have been resilient in the recent past despite corporate earnings estimate cuts and global uncertainties. We think positive domestic macros, as reflected in the significant fall in yields and the relatively lower beta of Indian equities underpinned by consistent domestic flows, are supporting market valuation,” Nomura said in a note.

 

In a recent report, BofA Securities said India may see sustained growth on the back of structural drivers.

 

“We see a confluence of nine structural drivers likely to position India for sustained strong economic and corporate earnings growth. India ranks as the second country globally, after the US, to deliver the best market returns over the past three decades (7 per cent compound annual growth rate in dollar terms), with growth driving a large share of its stock returns rather than valuation expansion,” it observed.