Net inflows into equity mutual funds fell a whopping 57% to a 30-month low in April but SIP investors kept the faith with a 17% rise in flows over the year-ago period. Data released by the Association of Mutual Funds of India showed equity inflows for April at Rs 4,608 crore, down 42% when compared with March 2019’s inflows of Rs9,014 crore.
Retail investors stayed steady with systematic investment plan (SIP) inflows growing 2% over March and 17.8% over April last year to Rs8,238.28 crore.
Temporary profit-booking due to uncertainty over the outcome of the general elections is one reason. Rupesh Bhansali, head-mutual funds, GEPL Capital, said: “A large portion of the outflows from equities can be attributed to HNIs and ultra-HNIs who are playing it safe by booking profits before the elections. We think, HNIs would re-enter the market post the outcome of the general elections.”
“Overall, nervousness in the markets owing to credit events, rating downgrades and defaults, coupled with global trade imbalance, and uncertainty over the outcome of general elections has led to investors getting into the wait and watch mode. We expect investors would return in a big way as corporate earnings improve further and the election-related uncertainty and global headwinds recede over the next few months,” said N S Venkatesh, chief executive officer (CEO), AMFI.
AMFI data show 40% of equity flows in April found its way into multi-cap schemes, 20% in smallcap schemes and 10% in mid-cap schemes. Investors appear to have shifted some of the money from large-cap schemes to multi-cap, mid-cap and small-cap schemes. Hybrid schemes too saw inflows, when most categories saw outflows. Arbitrage schemes recorded inflows of Rs1,529 crore.
Analysts also said rising flows in small-cap schemes reflect a belief among investors that the general elections will be a decisive mandate. Secondly, higher inflows in multi-cap schemes reflect a time tested strategy of protecting the downside when it becomes difficult to ascertain earnings' growth in companies across market capitalisation.
"I think the extent of overvaluation between large-sized and small-sized companies has come down in favour of small-sized companies. Besides this, in recent months, foreign portfolio investors have also bought in certain small-sized companies which have improved liquidity in these counters. Also, large-sized companies have been underperforming in the markets."