Equity mutual fund flows rise 17% to Rs 5,407 crore after Modi's triumph

Mid- and small-cap schemes mop up half of the equity flow

The mutual fund (MF) industry, which has been grappling with its debt exposure, saw some respite in terms of equity flows in May. The net inflows in these schemes rose 17 per cent to Rs 5,407 crore as Narendra Modi’s win in elections improved investor sentiments.

Moreover, there were signs of higher risk appetite among investors as mid- and small-cap schemes collectively garnered close to half of the flows that came into the equity schemes. The combined tally for the two categories was Rs 2,687 crore. The flows in mid-cap schemes (Rs 1,272 crore) were nearly 2.6x of levels seen in the previous month. Meanwhile, the flows in small-cap schemes rose 48 per cent to Rs 1,415 crore in May.

Experts said the investor money coming into the mid-cap scheme category was mostly driven by hope.

“Investors are hoping that the election outcome could trigger a broad-based rally. A more structurally positive indicator would have been money coming into the large- and mid-cap category,” said Swarup Mohanty, chief executive officer, Mirae Asset Management Company.

Experts caution that money coming into mid- and small-cap schemes can be volatile and less sticky in nature. “Mid- and small-caps tend to be volatile. So, money coming into these schemes can also be vulnerable to high levels of redemption,” said an industry official.

The other equity category to see sharp jump in flows was the focused category. The flows in the category saw a fivefold jump to Rs 1,199 crore in May.

At the end of May, industry assets regained the Rs 25 trillion-mark, rising 4.6 per cent, compared to the previous month. The industry had achieved the milestone in August last year before the Infrastructure Leasing & Financial Services crisis hit the markets.

Meanwhile, investors continued to be averse to credit-risk funds. The category saw net outflows to the tune of Rs 4,155 crore in May, taking the last two months’ outflow tally to Rs 5,408 crore.

Experts say the flows in credit-risk funds could take time to revive. “Investors would continue to review the situation and assess opportunities before deploying funds into this category,” said N S Venkatesh, chief executive of Association of Mutual Funds in India.

“The spate of rating downgrades and payment delays by some of the debt-burdened entities has dampened the sentiment around credit-risk funds,” said a debt fund manager.

The sentiment remained subdued around the close-ended schemes such as fixed maturity plans. The category saw net outflows of Rs 1,797 crore.  

However, experts feel that the cut in interest rates by the Reserve Bank of India could attract flows in the long-duration schemes. “The long-term funds are quite sensitive to the changes in interest rates. So, we could see some interest in this category,” said a fund manager. 

Meanwhile, the flows coming through systematic investment plans (SIPs) saw a marginal dip of 0.65 per cent. The SIP contribution in May was Rs 8,153 crore, against Rs 8,237 crore in April.