July equity flows hit nine-month low of Rs 8,898 crore, shows data

Sharp correction seen in June makes investors risk-averse

Equity-oriented mutual fund (MF) schemes received net inflows of Rs 8,898 crore in July — the lowest since October 2021 — and half of average monthly inflows received during the first half of the calendar year.

Industry players blamed volatile market conditions and profit-taking for the sharp decline in net inflows.

In June, markets had seen intense sell-off amid sustained selling by overseas funds on concerns of a hard landing of the global economy due to aggressive monetary tightening by the US Federal Reserve.

Markets staged a comeback in July. However, uncertain market conditions could have weighed on sentiment. Also, some investors cashed out, taking advantage of the 9 per cent bounce last month, said industry players.

“Investors could have taken some profits as markets went up. The momentum has been diminishing all through the past few months as the markets were correcting. If not for systematic investment plan (SIP) numbers, we might have witnessed actual net negative sales in July,” said Akhil Chaturvedi, chief business officer, Motilal Oswal MF.

Inflows via SIPs remained strong at Rs 12,139 crore — only marginally below Rs 12,276 crore in the preceding month. Sustained inflows through the SIP route have underpinned 17 straight months of positive inflows into equity schemes. This, in turn, helped markets offset the heavy selling of over $30 billion by foreign portfolio investors since October 2021.

“Continued retail investor interest is reflected in all-time SIP assets under management (AUM). Positive flows in almost all categories of MF schemes, except for hybrid funds, stand in good stead as economic recovery will pick up pace in the next few quarters,” said N S Venkatesh, chief executive officer, Association of Mutual Funds in India.

AUM for SIPs breached Rs 6 trillion for the first time ever in July. Equity AUM rose to Rs 14.15 trillion, from Rs 12.86 trillion at the end of June. The sharp upmove in the market boosted equity AUM. The average AUM for the industry rose to Rs 37. 8 trillion. In June, they had dropped to a 11-month low of Rs 35.64 trillion.

The increase in AUM was largely on the back of appreciation in equity assets. Debt AUM remained flat month-on-month at Rs 12.6 trillion.

Net inflows into debt schemes remained muted at Rs 4,930 trillion in July, with redemptions in liquid funds (outflows of Rs 7,693 crore), corporate bond funds (Rs 2,582 crore), and banking and public sector funds (Rs 2,810 crore) encumbering overall tally.

Overnight funds, meanwhile, saw the highest net inflows of Rs 19,919 crore.

Low-cost investment avenues like exchange-traded funds and index funds logged strong net flows of close to Rs 14,000 crore.

Market players expect flows to once again pick up in August, thanks to the strong new fund offer pipeline. Also, a sharp rebound in the market could entice investors sitting on the sidelines to invest.

Benchmark indices are now up close to 15 per cent from their June lows.

India is the best-performing global market during this period. However, the market surge has once again made valuations expensive, compared to historical averages. 

Instead of looking to time the markets, Industry players advised investors to tread the SIP path to tide over volatility.