India equity MF inflows drop 40% in May; gold ETFs post record outflows

India's equity mutual fund inflows fell to their lowest in a year in May as Iran war-driven ​market volatility drove away investors while gold ETFs saw ​record outflows after a call to curb bullion purchases promoted profit taking at ‌all-time high prices.

Flows into equity mutual fund dived 40 per cent month-on-month to 229.08 billion rupees ($2.4 billion) in May, data from the Association of Mutual Funds in India showed on Wednesday.

Inflows into small-cap, mid-cap and large-cap funds fell 28.2 per cent , 33.2 per cent and 36.9 per cent , respectively.

"The lower inflows are due to extreme volatility in the markets as crude hovers around $100 a barrel, which has prompted near-term caution among investors," said Venkat Chalasani, CEO of AMFI.

 

India, the world's third-biggest oil importer, is highly vulnerable to energy price shocks that could stoke domestic inflation and widen its trade deficit.

GOLD ‌ETF HIT

Gold exchange traded funds posted record outflows of 7.25 billion rupees in May.

In May, India raised import tariffs on gold and silver to 15 per cent from 6 per cent , as part of efforts to curb overseas purchases of the metals and ease pressure on the country's foreign exchange reserves.

Indian Prime Minister Narendra Modi last month urged people to avoid gold purchases for a year to help protect foreign exchange reserves. India ​meets almost all of its gold consumption through imports.

Investors have likely taken a "practical view" on gold ‌and booked profits at record highs amid government's request to avoid gold buying and some asset management companies halting inflows into ETFs, said Feroze Azeez, ​joint CEO ‌of Anand Rathi Wealth.

"After a sharp rally, future returns may not look as attractive as ‌they did over the past year," Azeez said. 

STEADY SIPs

Inflows through systematic investment plans, the preferred route for retail investors, remained resilient, helping cushion the market against overseas ‌outflows. ​SIP flows stood ​at $3.25 billion in May, little changed from the previous month.

India's benchmark Nifty 50 index lost 1.9 per cent in May, and is down 10.6 per cent so far ‌this year.