As Sensex breaches 25k, retail investors cash out

After witnessing a surprising increase in number of equity folios in April, the industry is once again back to the same trend of losing equity investors' base.

Though fund managers have been harping on a comeback by retail investors, amid Indian stocks scaling new highs on a daily basis, the on-ground reality is nothing has changed on this front.

After recording a surprising rise in the number of equity folios in April, the sector is again back to the trend of declines in the equity investor base. In May, 3,46,000 equity folios were closed, showing investors chose to use the opportunities to book profits and close accounts. In April, the equity segment of mutual funds had seen the addition 3,85,000 folios.

Investors have been redeeming investments, and the trend has accelerated after the Narendra Modi-led Bharatiya Janata Party came to power on May 16.

In May, when key stock indices rose eight per cent, gross sales in equity schemes, including equity-linked saving schemes, jumped to one of the highest in many years — Rs 10,224 crore. This was an encouraging sign, as average monthly gross sales stood at Rs 3,000 crore. But during the same period, redemptions, too, gathered pace — investors sold units worth Rs 8,200 crore, translating into net inflows of only Rs 2,000 crore.

The declining number of equity folios, however, isn’t worrying industry executives. Recently, Milind Barve, managing director of HDFC Mutual Fund, India’s largest fund house, told Business Standard one should not be carried away with equity folio closures. Sundeep Sikka, chief executive of Reliance Mutual Fund, feels retail investors are quite smart and are walking out with profits.

The national sales head of a large fund house says, “It is true there have been net inflows in equities. But the fact is we are actually seeing a fall in retail folios. It’s not that retail money is coming in; rather, these are large investors such as high net worth individuals who are pumping in funds.”

Some do not rule out the possibility of switches and churn bloating the gross sales number. In May, there were six equity new fund offers — two open-ended from ICICI Prudential and Principal MF and four close-ended (from Birla Sun Life MF, L&T MF, Reliance MF and ICICI Prudential). Together, these mopped Rs 970 crore during the month.

Fund mangers are hopeful redemptions will fall in coming months. They say the sentiment among retail investors is improving and soon, this will be reflected in money flows. Mahesh Patil, co-chief investment officer at Birla Sun Life AMC, says, “As confidence returns and the sentiment improves, we will expect inflows in equity funds to slowly pick up in time.”

Nandkumar Surti, managing director and chief executive of JP Morgan AMC, says “We expect incremental flows will be in favour of equity assets. Retail money should start coming from now, through the next one year or so.”

As on May 31, of the sector’s overall asset size of Rs 10.1 lakh crore, equity schemes contributed 21.5 per cent (Rs 2.17 lakh crore). Currently, the mutual fund sector offers 371 schemes in the equity segment to investors.