Equity mutual funds (MFs) saw a net monthly outflow for the first time in more than four years as investors booked profits after a sharp rally, with some of them ploughing the money back into safer assets such as gold and debt funds, worried about the recent exuberance in stock prices.
July saw a net outflow of ₹2,480.35 crore from equity mutual funds, the first such sell-off since March 2016, data released by the Association of Mutual Funds in India (Amfi) on Monday showed. Net inflows into equity schemes have been slowing after a robust ₹11,722.74 crore in March. In June, net inflows were at ₹240.55 crore.
Industry experts attributed the outflows to immediate cash requirements of investors amid falling household incomes because of the pandemic. Many investors are also concerned that the stocks rally is dangerously close to snapping amid a slump in profits and the unabated spread of coronavirus infections in India.
The redemption pressure on mutual funds intensified even as the contribution from systematic investment plans (SIPs) continued to dwindle. Net redemptions in equity mutual fund schemes increased to a four-month high at ₹16,622.01 crore in July, rising 23% from ₹13,520.03 crore in June. SIP inflows declined to ₹7,830.66 crore in July from ₹7,927.11 crore in the preceding month.
“The multi-cap fund category was the worst hit, followed by mid-cap and value fund categories. This could be largely attributed to investors booking profits given the surge in the equity markets across market segments,” said Himanshu Srivastava, associate director–manager, Morningstar India.
In July, benchmark indices gained more than 7%, driven by foreign institutional funds buying Indian shares worth $1.15 billion. Domestic institutional investors were net sellers of Indian equities worth ₹10,007.88 crore in the month.
Analysts said that a spurt in deal activity with a strong pipeline of equity market offerings by many large-cap companies coming up in the next few months may also be the reason for outflows from equity mutual fund schemes in July.
Meanwhile, net inflows into open-ended debt funds rose to ₹91,391.73 crore in July from ₹61,845.54 crore in the year-ago period. It was also substantially higher than the ₹2,861.68 crore in June.
However, June typically witnesses redemptions from banks and corporates on account of the ending of the quarter and advance tax payment obligations.
“July debt fund inflows will be a little distorted by the large investment of a particular corporate group,” said Rajeev Radhakrishnan, head of fixed income at SBI Mutual Fund. Reliance Industries Ltd invested at least $4.7 billion into debt funds after receiving cash from stake sales, Bloomberg reported last month.
International funds also saw a doubling of flows from June to ₹400 crore, a level not seen since June 2008.
“People are realizing the importance of global diversification,” said Pratik Oswal, head of passive funds at Motilal Oswal Asset Management.
Inflows into gold exchange-traded funds almost doubled to ₹921crore in July from ₹494.23 crore in June, as investors rushed to safe-haven assets.