Equity flows dip 47% in Apr despite mkts seeing sharpest run-up since 2009

Debt categories continued to see redemptions. Credit risk funds saw a bulk of the outflows at Rs 19,238 crore, registering the worst month for the category in 13 months

The dampening of investor sentiment in the wake of Franklin Templeton’s decision to wind up six debt schemes, coupled with a slowdown in the economy, spilled over into equity schemes, which saw net flows falling 47 per cent in April, even as the benchmark indices posted the biggest monthly gain since 2009. 

Industry data shows this was the sharpest dip in equity flows in 12 months. In April, net flows shrank to Rs 6,212 crore, as against Rs 11,722 crore in the previous month. “The winding up of schemes from the fund house has had an overall impact on the sentiment of mutual fund (MF) investors,” said Swarup Mohanty, chief executive officer, Mirae Asset Management Company. “April was also the first full month after the lockdown. So, this also had an impact.”

Debt categories continued to see huge redemptions. Credit-risk funds saw the bulk of the outflows at Rs 19,238 crore, registering the worst month for the category in 13 months. Compared to the previous month, outflows in credit-risk funds saw over three times jump. The category had witnessed outflows following the IL&FS crisis in 2018, but redemptions have accelerated after Franklin MF’s wind-up of its credit-oriented schemes. At the beginning of the last financial year (as of April 2019), credit-risk funds had close to Rs 80,000 crore of asset base, which has now shrunk to Rs 35,222 crore, a reduction of 55 per cent.

 

 

Medium-duration funds also saw Rs 6,363 crore of outflows in April. “Risk-aversion towards credit-oriented categories has continued. The recent move of winding up of certain debt schemes has led to risk perception among investors, impacting some of the other categories as well,” said Kaustubh Belapurkar, director (fund research) at Morningstar. 

Among other debt categories, low-duration funds saw outflows of Rs 6,841 crore, followed by Rs 3,419 crore of net outlfows in ultra-short duration funds. Industry participants say the Reserve Bank of India’s move to open up Rs 50,000-crore liquidity window for debt MFs to contain redemption risks following the Franklin episode helped to allay investor concerns to some extent and curbed panic redemptions. 

“While debt schemes have seen outflows, redemptions have reduced compared to last month,” said a senior executive of a fund house. On the equity front, gross flows more than halved, slipping to Rs 14,516 crore from Rs 30,109 crore in March. However, the contribution through systematic investment plans, or SIPs, stood at Rs 8,376 crore, accounting for a sizeable chunk of the gross equity flows. However, the monthly SIP contribution was down 3 per cent compared to March. 

“Investors have been cautious and are waiting on the sidelines,” Belapurkar added.

MF advisors say that with the lockdown disrupting business, clients are looking at holding back their MF allocations to deal with the impact on their monthly incomes.

Among equity categories, mid-cap and multicap funds saw the sharpest fall in flows. For mid-cap funds, flows dipped by 59 per cent to Rs 497 crore. Multicap funds saw a 45 per cent reduction in flows to Rs 1,240 crore. Flows in large-cap funds were 17 per cent lower at Rs 1,691 crore. Equity markets have seen heightened volatility amid concerns around the impact of the coronavirus-induced lockdown on economy.

In March, the Nifty was down 23.25 per cent. However, the markets started to regain some ground in April amid hopes of drug discovery to treat Covid-19 and new cases peaking. The Nifty gained 14.68 per cent in April, clocking its best month since 2009.