Equity Mutual Funds Log Rs 19,705-cr Net Inflow In February; 12th Consecutive Month To See Net Investment

By Author: Ricky Kirpalani
Total Articles: 24
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Equity mutual funds attracted a net sum of Rs 19,705 crore in February, making it the 12th consecutive monthly net inflow, amid a highly volatile stock market environment due to the current geopolitical situation.

In comparison, equity mutual funds saw a net inflow of Rs 14,888 crore in January and Rs 25,077 crore in December, data from the Association of Mutual Funds in India (Amfi) showed on Wednesday.

Equity schemes have been witnessing net inflow since March 2021 and the segment has received a net inflow of Rs 1.45 lakh crore during the period between March 2021 and February 2022 highlighting the positive sentiments among investors.

Prior to this, such schemes had consistently witnessed outflows for eight months from July 2020 to February 2021 losing Rs 46,791 crore.

''The latest inflow is quite encouraging, amid the expected hardening of interest rates and current geopolitical situation,'' Ricky Kirpalani, lead sponsor, First Water Capital Fund (AIF), said.

However, equity fund flows would have likely slowed down in March, given that the situation in Ukraine has continued to escalate. ...
... On the other hand, the postponing of the LIC IPO to the next fiscal year will also likely help limit March redemptions, he added.
Kavitha Krishnan, senior analyst (manager research) of Morningstar India, said that despite witnessing significant outflows from FPIs, domestic investors continue to use the market correction to invest in Indian equities. ''Despite concerns over the growing oil prices and the conflicts between Russia and Ukraine, which have in turn impacted the commodities markets in India, the markets have been witnessing positive flows. The trend is indicative of the increasing investor interest and awareness around investing,'' she said.

Akhil Chaturvedi, chief business officer of Motilal Oswal AMC, said markets have been flat in the past three months at the headline level. ''Despite (that), we have seen the domestic appetite for equities to be on the rise. In current times of geopolitical risks where markets have corrected sharply, the domestic investors have continued to add more allocation to equity.'' He added that this is clearly a positive change of attitude of investors towards this asset class.

''At this stage, net domestic positive flows are supporting the massive outflows seen by FPI's on a daily basis. A large part of the positive flows is also due to the strong SIP (Systematic Investment Plan) flow of Rs 11,000 crore monthly which continues to grow strongly,'' he added.

Overall, the mutual fund industry registered a net inflow of Rs 31,533 crore in February, compared with a net inflow of Rs 35,252 crore in the preceding month.

The assets under management (AUM) of the industry slightly went down to Rs 37.56 lakh crore at the end of February, from Rs 38.01 lakh crore at the January-end.

Within the equity segment, interestingly all the categories saw net inflows. The flexi-cap fund category saw the highest net inflow of Rs 3,873 crore, followed by thematic funds at Rs 3,441 crore during the period under review.

The number of folios has also gone up by 16.43 lakh since January 2022. Additionally, with the SIP book that's been growing consistently, equity-oriented funds have been receiving robust flows since March 2021.

Overall debt-oriented funds witnessed outflows to the tune of Rs 8,274 crore as opposed to witnessing inflows to the tune of Rs 5,087 crore in January. Short-duration funds witnessed the maximum outflow of Rs 12,092 crore, closely followed by corporate bond funds (Rs 10,219 crore) and floater funds (Rs 10,323 crore).

However, liquid and overnight funds witnessed inflows to the tune of Rs 40,273 crore and Rs 1,296 crore, respectively.

The debt segment saw a net withdrawal of Rs 8,274 crore last month after witnessing a net inflow of Rs 5,088 crore in January. Liquid funds saw inflows of Rs 40,273 crore, while short-duration funds, corporate bond funds and floater funds saw net outflows of over Rs 10,000 crore each.

According to Morningstar India's Krishnan, the central bank’s decision to maintain rates at a status quo and their relatively lower forecast around domestic growth seems to have dampened sentiments.

Moreover, single-digit returns from debt funds have proved to be detrimental, especially considering bond yields over the long and medium terms.

A possible reason for the net outflows from most of the categories could also be attributed to investors preferring to redeem their debt investments in favour of investing in the equity markets, which after a strong rally, has witnessed some correction since November 2021, thus providing a good entry point, she added.

Gold ETFs continued to witness a redemption for the second month in a row. While the redemption figures stood at a high Rs 618 crore in January and it reduced to Rs 493 crore last month.

Investors seem to be booking profits by redeeming their investments, given the uptick in gold prices.

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