HOPE OF political continuity, capex pickup,
likely interest rate cuts driving investors to equity MF
Mumbai: India’s gross domestic product isn’t the only metric firing on all cylinders. Mutual funds investing in stocks are doing even better, stretching the run of net inflows for the 35th consecutive month to this February, illustrating the financialisation of savings in every nook and corner in the country.
At ₹26,866 crore, February inflows dwarfed those in January by 23%, as monthly contributions through systematic investment plans (SIPs) rose to a record high of ₹19,186 crore. In January, SIPs netted ₹18,838 crore.
Expectations of political continuity, higher reforms in the coming years, a pickup in capex cycle and likely cut in interest rates later this year, are driving investors to equity mutual funds, taking total assets under management to ₹54.52 lakh crore, higher than the previous month’s 52.59 lakh crore. “Investors continue to be positive on the Indian economy.
They are using any sharp dips to add lump sum money,” says Manish Mehta, national head - sales, Kotak Mutual Fund. Debt funds saw net inflows of ₹63,808 crore, as investors added ₹83,642croreinliquid funds where returns are in the range of 7% and there is low credit risk, and they could use this money to move to equities in case of a correction. “After fulfilling the advance tax payments in December 2023, corporates had likely directed excess investible money in liquid funds for a short period, there by leading to huge inflows in the last two months,” said Nehal Meshram, senior analyst manager research, Morningstar Investment Research.
Within equities, all categories barring focused fund sreceived positive flows during the month. Thematic/sectoral fund, saw the highest inflows of ₹11,263 crore primarily due to the new fund offer (NFO) of SBI Energy Opportunities Fund that collected ₹6,700 crore. Flows into small-cap funds moderated with these schemes getting ₹2,922 crore compared to January’s ₹3,257 crore.
“While gross purchases in the small-cap category continued to be robust over the month, the redemptions in small-cap category were the third largest among the equity categories possibly due to investors opting to book profits on the back of as harpup tick in the performance of this category,” said Melvyn Santarita, analyst, Mornings tar Investment Research India. Multicap funds that invest in a mix of mid, small and large-cap stocks saw inflows of ₹2,414 crore while flexi-cap funds added ₹2,613 crore.
Large-cap funds, a category ignored by investors as they earned lower returns than mid and small cap funds, saw inflows of ₹921crore. Large and Midcap fund categories too saw inflows of ₹3,156 crore aided by two NFOs, while focused funds saw outflows of ₹533 crore. In the hybrid space, arbitrage funds continue to attract investors as rich investors find them a superior alternative to liquid and ultra short-term debt funds, since they are taxed as equity funds and have no credit risk.
Arbitrage funds saw inflows of ₹11,508 crore followed by multi asset funds with flows of ₹4,043 crore. Balanced advantage funds saw inflows of ₹1,287 crore and equity savings funds that allocate a small component of 10-25% of their portfolios to equity saw inflows of ₹1,344 crore. Gold ETF's saw inflows of ₹997 crore with investors making some purchases in hopes of the Fed looking to cutrates from April 2024. Fund of funds that invest overseas continued to see outflows with investors redeeming units worth ₹239 crore.
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