With markets impacted by the Covid pandemic and lockdown, cash-rich corporates and high net worth individuals (HNIs) in the financial capital Mumbai have enhanced the city’s dominant position in assets under management (AUM) held by mutual funds.
Accounting for nearly 60 per cent of the incremental industry AUM over the last three months, Mumbai increased its share in mutual funds by over 3 percentage points from 33.4 per cent in March to 36.5 per cent in June, according to data released by the Association of Mutual Funds in India.
Experts say that as markets fell amid the pandemic, large investors in Mumbai deployed their funds in sector-oriented and gilt funds, among others. With a large presence of corporates, Mumbai also benefitted from their investment in liquid funds.
The data shows that the industry AUM rose by Rs 3.2 lakh crore from Rs 22.26 lakh crore on March 31, 2020, to Rs 25.48 lakh crore at the end of June 2020.
In that three-month period, Mumbai’s contribution in the gain was Rs 1.87 lakh crore — 58 per cent of the industry’s incremental AUM — as its share rose from Rs 7.43 lakh crore to Rs 9.3 lakh crore.
Experts say Mumbai’s growing dominance, amid the severe economic distress caused by the pandemic, is a reflection of the presence of a large number of cash-rich HNIs and corporates in the city.
“They are sitting on cash but not lending or investing in businesses, which is a sign of low confidence in the economy. Since the markets are purely driven by liquidity and the hope of a medical solution to Covid, retail investors should be careful about where they invest and how much,” said an investment expert, who did not wish to be identified.
“The decline in bank interest rates has also resulted in HNI and corporate money moving into the markets,” the expert said.
While a large number of smaller cities witnessed a decline in their share, even cities such as Delhi, Bengaluru, Pune and Kolkata, which form the top five, witnessed a dip. In fact, the share of the top 15 cities, excluding Mumbai, dipped from 41.58 per cent in March 2020 to 39.36 per cent in June 2020.
Last year, a wealth report by Knight Frank said that Mumbai had 797 ultra HNIs out of 1,947 across the country, while Delhi had 211.
Industry insiders say that in Mumbai, “smart money” made its way into the market between April and June. “HNIs and investors in Mumbai deployed their funds in sectoral funds, such as pharma-oriented funds, and moved money into gilt funds even as investors from a large part of the country were trying to figure out whether to remain invested and continue with their SIPs,” said a senior executive with a leading mutual fund.
The mark-to-market gains in such sectoral funds has also led to the rise in Mumbai’s share as a high number of investors of such funds are in the city, the official said.
This trend is in sharp contrast to what has been seen over the last six years. Mumbai’s share in industry AUM stood at 42.04 per cent in March 2014 and dipped to 33.23 per cent in December 2019, as the industry witnessed a huge inflow of funds from smaller cities and towns.
In the same period, cities beyond the top 110 — based on AUM contribution — saw their share rise from 2.6 per cent to 11.47 per cent. However, over the last two quarters, the aggregate share of these cities came down from 11.47 per cent in December 2019 to 10.21 per cent.
But experts point out that the flow of investors has not stopped. In fact, it witnessed a significant recovery last month, with data showing that new SIP registrations in June rose to 9.13 lakh after having dropped to 7.5 lakh in April.
“Inflows from smaller cities and towns got impacted during the lockdown as many investors, who invest by physically visiting the branch, were not able to do so. They have also not been able to renew their SIPs that have completed their investment period,” said another executive with a fund house.
“There is fund inflow from smaller cities, but the fresh investments made by new investors is of relatively smaller ticket size,” said the executive.
During the quarter, while the industry-wide liquid fund AUM rose from Rs 4.24 lakh crore in March to Rs 5.29 lakh crore in June, that of the equity-oriented and ELSS schemes combined rose from Rs 6.02 lakh crore to Rs 7.28 lakh crore. Gilt, income and other debt schemes saw the combined AUM rise from Rs 7.55 lakh crore to Rs 7.69 lakh crore in the same period.
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