Equity schemes likely to post third straight month of asset growth in May

But it remains to be seen whether this is on account of incremental flows or has to do with appreciation in stock prices

Equity mutual funds (MFs) are expected to report inflows for the third consecutive month in May. Several of the important categories in the equity funds have seen a surge in assets under management (AUM) in May. However, it remains to be seen whether this is on account of incremental flows or only to do with appreciation in stock prices.

The benchmark Sensex rose 6.5 per cent last month—its best monthly showing this calendar year. The midcap and smallcap indices advanced 7.1 per cent and 8.9 per cent, respectively.

The Association of Mutual Funds in India (AMFI) will release official numbers next week. Industry players said most categories have seen net inflows amid the benchmark Nifty touching new all-time highs. This is contrary to earlier February when equity schemes reported outflows even as the market made fresh highs.

“Earlier we have seen investors simply booking the profits thinking that it’s a short-term rally. But now my feeling is that investors are getting more confident about the prospects of the economy and the markets,” said G Pradeepkumar, CEO Union AMC.

Equity-oriented schemes saw net inflows of over Rs 9,100 crore in March, after a gap of eight months. In the period between July 2020 and February this year, such schemes saw cumulative net outflows of Rs 52,725 crore, even as the benchmark Sensex surged more than 40 per cent during this period. In April, equity schemes had seen net inflows of Rs 3,437 crore.

Most equity sub-categories have seen an increase in AUM on a month-on-month basis in May, as equity markets zoomed up. Categories like large-cap funds, flexi-cap funds, and mid-cap funds have seen a steady increase in assets. In May, Sensex gained by around 6.5 per cent, while mid cap index surged by 7.1 per cent.

MFs were net buyers in the cash market for the second consecutive month. In May, they bought shares worth nearly Rs 200 crore till 24 May, shows the data from Securities and Exchange Board of India (SEBI).

Domestic equity fund managers had pulled out around Rs 1.23 trillion from Indian stocks amid consistent outflows between July 2020 and February 2021 because of redemption pressure.

Among the categories that saw the biggest jump in assets are large cap and flexi cap funds. The large-cap fund category saw its AUM increase from Rs 1.79 trillion at the end of April 2021 to Rs 1.88 trillion in May, shows the data from AMFI. The flexi-cap segment saw its AUM increase by Rs 9,157 crore to Rs 1.70 trillion in May.

Officials in the industry also say that investors have been attracted towards the equity funds and they have generated superior returns compared to other financial products.

“Other asset classes like fixed income and guaranteed products have been giving much lower rates. Even gold has not done well compared to the rally earlier, so given all these factors investors think that on a long-term basis market recovery is sustainable,” added Pradeepkumar.