MF investment in equity markets increased by four times in H1 2020

Further, consistent SIP (systematic investment plan) inflows into equity funds gave fund managers a healthy stream of capital to keep buying quality companies, say experts

Mutual funds net invested nearly Rs 39,500 crore in the stock markets in the first six months of 2020, more than four-times the amount infused in the year-ago period, as volatility and correction in the broader markets provided a good investment opportunity for investors.

Further, consistent SIP (systematic investment plan) inflows into equity funds gave fund managers a healthy stream of capital to keep buying quality companies, experts said.

This comes in the backdrop of the coronavirus pandemic related disruptions, a sharp slowdown in economic activity across the globe and a steep sell-off in equities in March 2020.

Overall, mutual funds (MFs) have made a net investment of Rs 39,478 crore in stocks during January-June 2020, much higher than the Rs 8,735 crore invested in the first six months of 2019, latest data available with the Securities and Exchange Board of India (Sebi) showed.

Of the total, more than Rs 30,000 crore was invested in March alone, when equity markets witnessed a sharp sell-off.

"The volatility and correction in the equity markets has provided good investment opportunity for investors," said Himanshu Srivastava, Director- Manager Research at Morningstar India.

He further said despite challenges, flows into equity-oriented mutual funds have been good this year, displaying a more mature investor behaviour wherein they are looking at corrections as an opportunity rather than threat.

Consequently, good flows into the funds and attractive valuations have enabled mutual fund to park more investments into the market and capitalise on this investment opportunity, he added.

Bajaj Capital said the over four-times higher investment during the six months ended June 30, 2020 could be explained by the rising popularity of asset allocation funds and such funds using the sharp fall of March to increase equity exposure at lower levels as valuations turned attractive.

MFs invested a net Rs 1,384 crore in equities in January this year, Rs 9,863 crore in February, a staggering Rs 30,285 crore in March, while they pulled out Rs 7,965 crore in April. Reversing the selling trend in May, they put in Rs 6,522 crore, but once again withdrew Rs 612 crore in June, the data showed.

Indian benchmark indices had plunged 40 per cent from their peak in March as foreign investors went on a selling spree, offloading nearly Rs 62,000 crore of stocks in the month, amid the COVID-19 outbreak.

"The sharp sell-off in equity market by foreign investors led to cheaper valuations driving domestic mutual funds to do value buying," according to Bajaj Capital.

After the market fall in March, the valuations of many high quality stocks in India had become very attractive and mutual funds seem to have made good use of this opportunity, said Harsh Jain, co-founder of Groww.

Bajaj Capital noted that the most important driver of this investment by mutual funds was the resilience and maturity shown by the Indian investors.

Monthly SIP inflows remained above the Rs 8,000 crore mark despite the volatility. Even lumpsum inflows were seen coming from HNI investors after the sharp fall in March.

"The data is highly skewed because of large MF buying in the month of March, where funds would have wanted to take advantage of steep decline in share prices," said Nilesh Shetty, Association Fund Manager at Quntum AMC.

Echoing the views, Kaustubh Belapurkar, Director - Manager Research, Morningstar India said higher investment this year could be attributed to equity mutual funds buying into the markets during the significant market correction in March.

In addition, aggressive hybrid funds bought significantly into equities as they rebalanced their portfolios to bring up the equity allocations. Dynamic asset allocation funds also increased equity allocations as valuations became more attractive.

Dynamic asset allocation funds, a category with a cumulative AUM of Rs 98,000 crore as on February 29, 2020 and carrying net equity exposure of 40-45 per cent on average, had increased their equity allocation to an average of 65-70 per cent by March-end, capitalising on the attractive valuations. They have maintained net equity exposure of 55-60 per cent since then. Even the aggressive hybrid mutual funds have increased equity allocation in March, Bajaj Capital noted.

It further said Indian indices have recovered 60 per centof the losses incurred in February-March, partially helped by inflows of about Rs 36,400 crore from foreign investors in the past two months.

"There is ample liquidity worldwide on the back of monetary and fiscal stimuli rolled out by various central bankers. This liquidity is resulting in huge support to equity prices everywhere, including India," it added.