MFs' Apr-Jul net equity purchases at just Rs 55.5 cr

The net equity purchases by mutual funds in April-July was a paltry Rs 55.49, according to data released by the Securities and Exchange Board of India.

Net equity buy of mutual funds for the 2003-04 was healthy at Rs 1,380 crore. The recent lacklustre buying has been attributed to reduced inflows and a volatile market scenario.

Inflows into equity-dedicated schemes saw a significant cut, given the scepticism of investors on government policies and fears of a failed monsoon, said fund managers.

"Redemption pressure also took its toll on the industry. Several investors, particularly the high net worth segment, began pulling out once the Sensex crossed the 5000-level," said Jayesh Shroff, fund manager-equities, at the Bank of Baroda-sponsored BoB Mutual Fund.

"In the last two-to-three months, funds have been acting on the basis of the money they received," said Rajat Jain, chief investment officer, Principal Mutual Fund.

And, equity funds have not been receiving strong inflows during this period, as data released by the Association of Mutual Funds in India indicates. Equity funds received net inflow of only Rs 6 crore in June, a huge fall from Rs 1,025 crore in May.

"In the past two-to-three months, there were several pending government policy measures""particularly those relating to interest rates and oil prices""that were bogging the investors. There was also the possibility of a failed monsoon staring at their faces, which discouraged them from putting money into equities. All this led to lacklustre inflows into equities during the period," said Ashim Syal, chief investment officer, ING Vysya Mutual Fund.

These factors also adversely affected the inflows into the equity schemes of mutual funds, Syal said.

"Ever since the government at the Centre changed in mid-May, the equity market has been extremely volatile, discouraging investors from investing fresh money. It also made funds put off several new scheme launches. And fewer initial public offers meant less fresh inflow," said Jain of Principal Mutual.

In May, the 30-share BSE Sensex fell by almost 16 per cent, closing at 4759.62 in May-end against 5655.09 in April-end. In June, the Sensex hovered around May's closing level. July, however, saw the market stage a good recovery and the Sensex was up almost 8 per cent to 5170.32 by the month-end.