2022 to see tepid FPI flows into equities, MF flows to stay intact: Experts

Between Jan-Nov 2021, equity funds saw net inflows of around Rs 71,600 cr, while FPIs remained net buyers to the tune of 24,143 cr

Foreign portfolio investor (FPI) flows into equities are likely to be tepid in 2022, said experts. They, on the other hand, predicted that investments in equity mutual funds will stay strong amid expectations of better returns.

Between January and November 2021, equity funds saw net inflows of around Rs 71,600 crore. And, FPIs were net buyers to the tune of Rs 24,143 crore in the year.

Though FPIs were net buyers, their purchases were nowhere near their 2020 figure of Rs 1.7 trillion or 2019's Rs 1 trillion. In 2022, this figure could be even less as central banks prioritise taming inflation rather than fuelling growth.

"The first quarter is going to be volatile because of tightening liquidity. There will be a hike in interest rates which is never good for emerging markets," said Andrew Holland, CEO, Avendus Capital Alternate Strategies. India, though, may emerge as an outperformer among EMs.

"I don't think EMs as a class will get as much inflows as in 2021 or the previous one. There can be fewer outflows from India... I don't expect FPI flows to be a major factor. They can be mildly positive or negative," said U R Bhat, co-founder, Alphaniti Fintech.

FPIs have been net sellers over the past three months. The trend started in October after the benchmark indices hit record highs, and despite a 7 per cent correction from the all-time highs, experts said Indian stocks are nowhere near valuation comfort.

But analysts are of the view that flows may come back once anxieties about rising interest rates ease because the Indian economy is likely to grow fast in 2022.

"It all depends on how quickly inflation comes down. Once expectations around interest rates stabilise, investors will be looking for growth. And India will stand out. We will be a fast-growing economy. If the Budget is considered good, we may see flows again but the first quarter will be tricky to get flows," said Holland.

Sectoral diversity is another factor that gives India an advantage over its emerging market peers. "We have a highly diversified set of companies. Our competing markets have much concentration on a few sectors like materials, real estate, and banking," said Bhat

Equity funds remained in demand in 2021, aided by the surge in inflows into systematic investments plans (SIPs). According to industry participants, flows into equity funds will remain strong even this year.

"Given the experience of investors in equities, and especially in SIPs, I assume flows will remain strong even in 2022, and MFs will continue to support the markets. This calendar year, I foresee more participation from smaller markets, too," said Ashutosh Bishnoi, MD and CEO at Mahindra Manulife MF.

In November, SIPs saw record inflows of Rs 11,005 crore, according to the data from Amfi.

Market participants also said that there will be interest from investors even in hybrid products like equity saving schemes and balanced advantage funds (BAFs). "Lump-sum investors who have got strong returns over the past year may reallocate part of their money to hybrid funds. So, apart from equity funds, hybrid funds will get strong inflows in 2022," said Bishnoi.

According to industry participants, investors will continue to invest in equity funds for higher returns amid subdued returns generated by debt funds. Over the past year, large-cap funds have given an average return of 25.37 per cent. In comparison, mid-cap and small-cap funds have given average returns of 43.74 per cent and 61.87 per cent, respectively, according to Value Research's data.