Mutual funds’ flow into equities crosses Rs 1 trillion mark in CY18

Mutual funds’ flow into equities crosses Rs 1 trillion mark in CY18
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New Delhi, Oct 24: Domestic mutual funds (MFs) have continued to pour money into equity markets all through 2018 with their net inflow crossing Rs 1-trillion mark for the second consecutive calendar year. Thus far in calendar year 2018 (CY18), MFs have pumped in a net Rs 1.02 trillion in equities, Securities and Exchange Board of India (Sebi) data show. In comparison, they had invested Rs 1.19 trillion in equities during CY17.
Despite market volatility on account of a sliding rupee, rising oil prices and the crisis in the bank and non-bank finance companies (NBFCs) and other global factors, MFs have put in Rs 253 billion in equities since September. The S&P BSE Sensex and the Nifty 50 have slipped 13 per cent each from their respective highs recorded on August 28, 2018 in this backdrop.
Though the flows have been steady, the monthly quantum, however, has been wavering – and experts do not see the overall investment climate turning around in a hurry.
“MF’s investment into equities is a function of how much money they get from investors. SIPs, at the margin, are showing some concerns. Some investors have adopted a wait-and-watch approach. The overall investment climate has got a little roiled due to the liquidity issues in the bank and NBFC segments. That apart, investors are also holding back investment plans due to the upcoming elections. Based on past experience, I do not see this turning around very quickly,” says Lalit Nambiar, executive vice-president and fund manager (equity) at UTI Mutual Fund.
Foreign portfolio investors (FPIs), on the other hand, have withdrawn Rs 341 billion from equity segment so far in CY18, their highest outflow in rupee terms since CY08, NSDL data show. They pumped in Rs 513 billion from the equity segment during entire CY17. In October alone, they withdrew Rs 209 billion ($2.8 billion) from equities – the highest ever amount in rupee terms.
Rising oil prices and weakening emerging market currencies, including the rupee, are the two key reasons, experts say, are making foreign investors nervous. With the US Federal Reserve continuing to hike interest rates, the debt flows and flows into the emerging markets (EMs) will also be impacted going ahead.
“FII / FPI flows into equities will continue despite lack of triggers. However, stability will only return in case the rupee’s fall stems. That apart, there are headwinds at the global level as well that are impacting flows into the EM pack, including India. What works for India is relative macro stability and benign inflation. I would wait for currency trend as a guiding factor for flows to return in a meaningful way,” says Tirthankar Patnaik, India Strategist, Mizuho Bank.
Jigar Shah, chief executive officer at Maybank Kim Eng, too, believes that FII / FPI outflows could continue in case the rupee slides further. Any surprise outcome of the elections scheduled over the next six months, he says, is another reason that could flush some money out.
“FPIs have their own reasons for exiting. A possible rate hike by the US Federal Reserve (US Fed) could lead to some reversal of flows from EM to developed markets (DMs). Moreover, a sharp depreciation in the rupee is hurting their returns and forcing them to withdraw. They can come back once the currency stabilises. I do not view it as their rejection of India as a high potential market for the medium-to-long term,” Shah says.