With domestic stock markets rallying to lifetime highs in November, equity mutual fund (MF) investors went in for profit booking – leading to a sharp outflow of funds from equity-oriented schemes. The MF industry witnessed a net outflow of Rs 12,917 crore in November – the highest in any month in at least 15 years.
The benchmark Sensex surged by around 4,500 points, or 11.4 per cent, to 44,149 in November, as foreign portfolio investors (FPIs) invested over Rs 60,358 crore in the month, the highest ever monthly inflow. The MF redemptions are in sharp contrast to the FPI investment trend. While the gross sales for equity-oriented schemes amounted to Rs 14,195 crore, the redemptions amounted to Rs 27,113 crore, leading to a net outflow, according to figures released by Association of Mutual Funds in India (Amfi). November saw a dip in equity folios as the numbers went down from 6.39 crore investor accounts in October to 6.35 crore folios in November. If hybrid schemes, which include equity and debt instruments, are taken into account, the outflow touched Rs 18,000 crore in November. Hybrid schemes saw outflows of Rs 5,249 crore in the month.
Over the last five months, equity MF investors have pulled out a net of Rs 22,854 crore from equity-oriented schemes. Domestic institutional investors (including MFs, insurance companies and institutions) pulled out a net of Rs 86,602 crore from domestic equities over the five-month period.
“The strong performance of the equity markets in November seems to have encouraged more investors to book profits and move to short-term investments. We still believe that there is significant amount of money that can come back to the market in the event of any correction. The medium to long term potential of the equity markets remain strong,” said G Pradeepkumar, CEO Union AMC.
As the markets continue to touch all-time highs, investors are wary of allocating more money towards equity as an asset class, fund managers said. “While this is a sign of maturity as, historically, we have seen investors flocking towards equities in an upward trending market and redeeming during market correction. However, they are also missing the opportunity of participating in the market up-move,” said DP Singh, Chief Business Officer, SBI Mutual Fund.
November was a good period for equity markets, with the Nifty 50 at an all-time high. There was a very strong recovery in the mid- and small-cap indices, with mid and small caps turning positive – after three years of negative returns – for calendar year 2020. The rally was boosted by record FPI buying backed by strong liquidity, lower interest rates and increased interest in emerging markets. The markets are clearly pricing in the positives of recovering economic data points, lower interest rates and sign of vaccine coming out very soon and all of this leading to a very positive impact on earnings in coming quarters and more specifically FY 22, said said Akhil Chaturvedi, Associate Director & Head of Sales, Motilal Oswal Asset Management Company.
Stock market data shows there has been a visible shift in the manner the retail investors have approached the equity markets over the last six to eight months. While MFs have been their primary mode of equity investment over the last six years, they went for direct stock picking over the last six to eight months as the markets fell sharply opening up a window of opportunity or stick picking.
Waqar Naqvi, CEO of Taurus Mutual Fund, said, “The redemption translates to just over 1 per cent of AUM … A miniscule section may have also redeemed to tide over the cash crunch brought about by the ongoing pandemic.”
Prior to Covid, MFs were the preferred mode of investment for retail investors. In the six years between April 2014 and March 2020, net inflow into equity MFs amounted to Rs 5.74 lakh crore.
Meanwhile, total assets under management (AUM) of the MF sector has crossed Rs 30 lakh crore in November, aided by inflows of Rs 44,983 crore into the debt segment. “Investors are aligning their allocation in debt schemes more towards duration schemes and corporate bond funds to maximise their debt returns, and on the other hand booking their profits in equity funds owing to surge in equity valuations,” said NS Venkatesh, chief executive, Amfi.
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