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MFs get record monthly SIP inflows
Inflows into mutual fund schemes through the so-called systematic investment plan (SIP) route hit a record high of Rs 4,584 crore in May. SIP inflows were 44 per cent higher compared to the corresponding month of last year and 20 per cent more than one-year average.
SIP is an option wherein an investor makes a recurring commitment to put in a fixed income periodically. SIPs, as opposed to lump sum investments, help mitigate risk, particularly when the markets are trading at near record levels.
Even the mutual fund industry benefits from SIPs flows as they are consistent in nature. The industry has been creating a lot of awareness investing through this route. Market players say inflows through the SIP route will only increase from current levels. Broking firm Geojit Financial Services in a recent note said SIP flows could double to Rs 10,000 crore in next two years. “Investors are increasingly coming to equity markets through SIP route, leading to a sudden spike in SIP folios in the past one year and the trend is likely to gather more speed over the next couple of years,” the brokerage says.
why domestic investors are becoming more relevant in Indian markets
The clout of domestic investors on Indian stock markets has augmented more than ever before, with the benchmark indices recurrently scaling new highs. The upsurge in mutual fund equity flows has given a new connotation to Indian equity markets. The mutual fund equity inflows and stock market performance are developing a positive correlation, which was not the case till a couple of years ago, because hitherto the quantum of foreign fund flows used to determine the equity market performance. Hence, one can rightfully claim that Indian equity market valuations are increasingly getting Made-in-India, given that household savings are incrementally being channelized towards financial products.
John Maynard Keynes, British economist and champion of free markets, said, “The importance of money flows is a link between the present and the future.” Keynes believed that the unique function of money is to carry us from where we are currently to where we are destined to go. The increased participation from domestic investors in Indian equity markets submits that they are scripting a promising future for themselves.
A study reveals that between 2004 and April 2014 (pre-general elections), monthly equity flows and MSCI India Index performance had a strong correlation. MSCI India (US$ Index) performance declined 7% (median) over the same period in concurrence with foreign fund selling. However, the trend has altered since May 2014—MSCI India Index has declined less than 1% (median) during periods of foreign institutional investors (FII) selling, and this illustrates the increasing might of domestic flows.
Of these, Indian household savings have become a dominant driver of local institutional flows. Mutual funds had pumped in Rs48,005 crore, as against Rs18,783 crore by FIIs in 2016, shows investment data. This reflects the appetite of domestic investors for equity markets (Source: NSE, BSE, Sebi and Amfi).
Peter Lynch, legendary value investor, mutual fund manager, and philanthropist, said “There are substantial rewards for adopting a regular routine of investing, and following it no matter what, and additional rewards for buying more shares when most investors are scared into selling.” Hence, investors planning to participate for long term in Indian equity markets should follow Lynch’s counsel for rich dividends.
Mutual funds have unfailingly received significant inflows through systematic investment plans (SIPs), which were deployed in equity markets. Incidentally, demonetization has been a game changer for the mutual fund industry, as equity inflows have touched new highs after the November move. This was also at a time when large section of investors had turned cautious about investing in other asset classes like gold and real estate. This has been reflective in the subscriptions into SIPs, which has been rising consistently. Data from the Association of Mutual Funds in India (Amfi) shows monthly inflow of Rs4,269 crore through SIPs in April 2017, as compared to just Rs980 crore per month in 2012, aptly reflecting the increased interest in recurring savings allocations.
Hearteningly, it is the balanced fund category that has witnessed strong momentum as Indian savers are gradually gravitating from physical to financial savings with first billion dollar-plus monthly inflows into balanced funds (aggregate net subscription for April 2017 stood at a historic high of $1.1 billion). Mutual funds’ equity and equity-linked savings schemes (ELSS) witnessed an aggregate net inflow of Rs94 billion ($1.5 billion) in April 2017, which is more than twice the April 2016 inflows, and 61% higher than the past 12-month average. However, Indian stock market valuations currently appear somewhat expensive, against historical averages. The trailing price-to-earnings (P-E) multiple for S&P BSE 500 Index is currently trading at 26 times or close to 2 standard deviations above the long-term average. In addition, more than a quarter of stocks are trading at over 40 times trailing 12-months earnings, the highest ever. To provide a perspective, in December 2007, the median P-E for the market was 21 times, and 24% of the stocks were trading over 40 times trailing P-E. However, historical market patterns point that sooner than later, markets tend to realign to historical valuations, typically as and when earnings growth materializes.
Nevertheless, one should always remember that no one asset class has ever moved in a straight ascending line, and, when it comes to financial assets in particular, the exhibition of volatility is even more prominent. Indian equity markets are trading around all-time high, and given the interesting and dynamic market environment, it calls for a rebalancing of portfolio, Hence, a suite of products such as dynamic asset allocation or balanced advantage category of funds are recommended for investors as they prepare to navigate the probable volatile times in the days ahead.
We anticipate the Indian market performance to be determined by the earnings growth trajectory and GST implementation. Surging domestic liquidity and high secondary market valuations also bode well for corporate deleveraging or reduction in cost of capital, which may further bolster equity market sentiments. Also, the recent domestic and international political developments have been favourable for investor risk appetite. Interestingly, these are good times to remain invested in stock markets, as Indian economic growth soars to a robust 7%-plus, making it the fastest growing emerging market globally.
Nimesh Shah is managing director and chief executive officer, ICICI Prudential Asset Management Co. Ltd
MFs investment in bank stocks hits all-time high of Rs 1.44 lakh cr in May
Mutual fund managers continued to be bullish on bank shares, with their allocation to the sector reaching an all time-high of over Rs 1.44 lakh crore at the end of May, mainly due to cheaper valuations.
In comparison, the figure was Rs 90,014 crore at the end of May 2016.
Banking continues to be the most preferred sector with the fund managers as they cannot afford to take a bearish call on banking stocks, given the high weightage attached to the index.
“MFs have been adding exposure to the financial sector, especially banking stocks because of lower valuations due to price corrections and growth in corporate lending. Besides, banks' NPA (non-performing asset) problem is getting sorted out,” said Kaustubh Belapurkar, Director Manager Research, Morningstar Investment Adviser. Further, experts expect that bank stocks would continue to be in focus in the coming months as SEBI had yesterday eased its takeover norms for restructuring listed companies with stressed assets.
The relaxation will exempt investors from making a mandatory open offer subject to shareholders’ nod and some other conditions. SEBI's decision on restructuring in stressed firms comes against the backdrop of the Government and the Reserve Bank of India (RBI) stepping up efforts to tackle the menace of bad loans, amounting to more than Rs 8 lakh crore.
Overall, the deployment of equity funds in bank stocks stood at Rs 1,43,704 crore at the end of May 2017 compared to the previous high of Rs 1,34,596 crore in the preceding month, according to SEBI data.
Mutual funds are investment vehicles made up of a pool of funds collected from a large number of investors. They invest in stocks, bonds, money market instruments and similar assets.
Mutual funds AUM increases for fifth straight year in FY17
Asset under management of domestic mutual fund industry rose for the fifth straight year by 35 per cent year-on-year, or Rs 4.8 lakh crore to an all-time high of Rs 18.3 lakh crore in FY17.
Equity AUM climbed for the fourth consecutive year in FY17 to touch a new high of Rs 4.8 lakh crore, registering a jump of 40 per cent year on year.
Benchmark NSE Nifty advanced nearly 19 per cent during the previous financial year ended March 31, 2017. The 50-share NSE Nifty index jumped to 9173.75 on March 31, 2017 from 7713.05 on April 1 last year.
The second half of FY17 tumultuous after Prime Minister Narendra Modi banned higher-end currency notes in November amid surprised victory of Donald Trump in the US Presidential elections. However, sentiments again turned in favour of D-Street after BJP win the most populous state Uttar Pradesh.
Equity AUM, as a percentage of India’s market capitalization, increased 40 basis points year-on-year to 4 per cent in FY17, while equity ELSS AUM of the industry rose 47 per cent in FY17 and 21 per cent over last five years.
Equity MFs log Rs 70,367 cr inflow in 2016-17
Investors pumped in more than Rs. 70,000 crore in equity-oriented mutual fund schemes in 2016-17, making it the third successive year of net inflows.
The strong inflows have pushed the asset base of equity MFs by 41 per cent during the period under review.
Market players attributed the phenomenon to continuous participation from retail investors through systematic investment plans (SIPs), along with positive returns from equity funds and steps taken by asset management companies to create awareness among investors.
“2016-17 has been a golden year for the mutual fund industry as net inflows into equity MFs have been positive in each month without exception,” Bajaj Capital Group Director Anil Chopra said.
“Much of the credit can be given to maturity of retail investors who have come up in the ‘learning curve’ by contributing 1.3 crore monthly SIPs adding more than Rs. 4,000 crore per month in various top-performing equity mutual fund schemes.”
According to data from the Association of Mutual Funds in India (AMFI), equity funds, which also include equity-linked saving schemes (ELSS), saw net inflows of Rs. 70,367 crore in 2016-17, a slight drop from Rs. 74,024 crore infusion in 2015-16.
These funds had seen net inflows of Rs. 71,029 crore in 2014-15 and withdrawal of Rs. 9,269 crore in 2013-14.

The gone-by fiscal saw a surge in the number of retail investor accounts, or folios, in equity, equity-linked saving schemes and balanced categories, which grew more than 58 lakh to 4.4 crore.

 
“The mutual fund industry is at a take-off stage in terms of growth and Indian investors are focussing on investments in equity as an asset class,” said SrikanthMeenakshi, COO, FundsIndia.com, an investment portal for MFs.
The assets under management (AUM) of equity MFs scaled to a record high of Rs. 5.43 lakh crore at the end of March 2017 from Rs. 3.86 lakh crore at March 2016-end.
MF investments in bank stocks hit all-time high of over Rs 1.26 lakh cr
Mutual fund managers continued to be bullish on bank shares, with their allocation to the sector reaching an all-time high of over Rs. 1.26 lakh crore at the end of March, mainly due to cheaper valuations.

In comparison, fund managers’ investments in bank shares stood at Rs. 80,468 crore at the end of March 31, 2016.

“MFs have been adding exposure to financial sector, especially banking stocks due to several reasons — lower valuations due to price corrections, expectation of corporate lending growth returning and better net interest margins, especially after the demonetisation announcement which lowered the cost of funds for many banks,” said KaustubhBelapurkar, Director Manager Research at Morningstar Investment Adviser.

During the past fiscal, many private sector banks, NBFCs and select PSU banks witnessed fresh purchases. Stocks like ICICI Bank and SBI witnessed significant additions, at the same time Axis Bank saw consistent selling, he said.

Besides, fund managers subscribed to the initial public offering of Ratnakar Bank, he added.

Overall, the deployment of equity funds in bank stocks stood at Rs. 1,26,587 crore at the end of March 2017 compared to the previous high of Rs. 1,19,796 crore in the preceding month, as per Morningstar data.

Banking continues to be the most preferred sector with fund managers as they cannot afford to take a bearish call on the banking stocks, given the high weightage attached to the index, he added.

Mutual funds are investment vehicles made up of a pool of funds collected from a large number of investors. They invest in stocks, bonds, money market instruments and similar assets.

Mutual Fund Units involve Investment risks including the possible loss of principal. Please read SID carefully for details on risk factors before investing.

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