MF assets declined faster for frontier territories amid volatility

Sharp drop in total assets under management compared to rest of the country

The mutual fund industry’s saw investment holdings from some states and union territories decline faster than others after the stock market hit its peak.

At least five territories have seen their assets decline by a tenth or more of what they were during October 2021, shows an analysis of numbers from tracker Prime MF Database. They include Manipur (-11.5 per cent), Sikkim (-14.6 per cent), Dadra and Nagar Haveli (-21.1 per cent), Daman and Diu (-29.5 per cent) and Lakshadweep (-75.3 per cent). The country’s total assets under management grew 0.9 per cent in the same period as seen in chart 1.

Many of these territories are frontier ones which have just begun to invest in mutual funds. The average assets under management for the five mentioned above is Rs 677.8 crore.

The S&P BSE Sensex had hit a peak of 62,245.43 on 19th October. It has since been on a decline on account of geopolitical tensions over Russia’s military action in the Ukraine and the spectre of rising global interest rates. Higher interest rates globally would mean a reversal of the foreign money that has helped push markets higher. Foreign portfolio investors have been net sellers to the tune of Rs 1.49 trillion since October. The S&P BSE Sensex ended at 55,776.85 on Tuesday.

The analysis looked at how mutual fund investors from different states have reacted to the change in sentiment. Mutual fund investments had seen a surge of interest following the stock market boom which began in 2020. It looked at the available data on total assets under management. Many of the states with a small asset-base are largely invested in equity.

For example, Manipur has Rs 600 crore in assets as of February 2022, of which 87 per cent is equity. Sikkim had Rs 1,300 crore in assets of which 68 per cent is equity.

The trend is true to a lesser degree if one looks at the trend in assets under management for the top 30 cities versus others. The top 30 cities added Rs 34,982.97 crore in assets. The others saw assets under management drop by Rs 653.44 crore. To be sure, some of this could be driven by the fact changes in debt allocations with many large corporate investors based out of cities like Mumbai.

Mutual funds have continued to see equity inflows on an industry-wide level. The total inflows into open-ended equity funds in February was Rs 19,705.27 crore. The numbers may well vary for individual states.  

Systematic investment plans (SIPs) have driven inflows noted a March 9 research report entitled ‘India MF Flows Feb-22: Equity flows strengthen against the tide’ from financial services major Jefferies India; authored by equity analysts Abhishek Saraf and Prakhar Sharma. The SIP allows investors to make a fixed, regular investment contribution every month instead of allocating capital in a lump sum manner.

“Despite market weakness, Indian equity mutual funds sustained strong flows….Even as expectations of redemptions build up, past two months' inflows in declining markets suggest retail investors' appetite to ride volatility and invest at lows. At the other end, flows into passives also picked up after breather in January 2022 and this trend should sustain,” said the report.