Domestic mutual funds continue to buy equities amid market volatility

According to the data sourced from Sebi, MFs bought Rs 18,871 crore worth of shares in the current calendar year

Domestic mutual funds (MFs) have continued to buy equity shares, even as foreign institutional investors (FIIs) have pulled out large amounts of equity investments during the recent market meltdown. 

According to the data sourced from the Securities and Exchange Board of India (Sebi), MFs bought Rs 18,871 crore worth of shares in the current calendar year. Meanwhile, FIIs have been net sellers to the tune of Rs 14,889 crore. This includes, according to the provisional data, Rs 6,027 crore worth of shares sold by FIIs on Friday. 

Domestic fund managers say the market selloff has made valuations attractive and conducive for fresh investments. “Valuations across the board have become attractive. India’s macro data looks strong with balance of payment surplus and sharp correction in crude prices,” said Chandraprakash Padiyar, senior fund manager at Tata MF. ­­­­For investors like us, it is a great opportunity to use the cash we hold to deploy in the markets. We are closer to the bottom of the current correction phase and should expect a better outlook over the next 12-18 months,” he said. 

The sharp correction in Brent crude prices has come as a positive trigger, even as the coronavirus pandemic created uncertainty around global growth expectations. 

In year-to-date, Brent crude is down 50 per cent, trading at $33 per barrel. 

“Oil being one of the largest items on the country's import bill, such price correction should translate into a favourable outcome for the country’s current account deficit,” said an analyst.

Meanwhile, fund managers are also considering making some changes in their portfolios to mitigate any fresh risks. “We are using the opportunity to reshuffle the portfolio towards companies, which can sustain the slowdown in the economy and a changed macroeconomic scenario where the rupee could slip and inflation could be higher. In the cautious markets, we see opportunities and are deploying cash,” said IV Subramaniam, managing director and chief investment officer at Quantum Advisors.

Domestic fund managers’ cautious optimism also helped the markets stage a strong recovery on Friday. According to the provisional data on exchanges, FIIs on Friday sold shares worth over Rs 6,000 crore. 

In contrast, domestic institutional investors bought shares worth Rs 5,867 crore. In the current calendar year, FII sentiments towards the Indian markets have gone through sharp highs and lows. By the second half of February, FIIs had pumped in over Rs 25,686 crore worth of investments in Indian equities. Since then, constant FII selling over the last 14 trading sessions — aggregating to over Rs 40,000 crore — has turned them into net sellers for the current calendar year.