 "MFs despair at continued haemorrhage in equity")
The first four months of the current financial year (April-July) have seen an erosion of around 1.5 mn, bringing the sector to far below where it stood in 2007-08. With the data for July’s decline, overall equity folio closures are 9.4 mn since the global financial crisis broke.
And, this is despite stock markets having returned to their previous peaks within 18 months of reaching the bottom, to about 8,000 for the BSE’s Sensex. Since then, the Sensex has closed over 20,000 not less than 70 times.
Interestingly, in the first year after the bottoming-out phase, in 2009-10, there was an erosion of only 13,000 equity folios, while the benchmark indices were on their way to make yet another peak during a “V’-shaped recovery phase. The erosion dramatically intensified in 2010-11, with a little over 1.8 mn equity accounts seeing closure, a shock for fund houses.
Then, industry executives had said that it was a profit booking exercise, especially by those investors who had entered the markets during 2007-08 at higher levels. In hindsight, it was for more of a low-risk appetite among investors.
Reversing the tightening on mutual funds after early 2011 didn’t help. The outflow worsened, with 1.64 mn and 4.5 mn folios getting closed in 2011-12 and 2012-13, respectively. As noted, it continues unabated this financial year, too.
“We are in dire need of a strong bull market to see interest coming back to equities,” says the chief marketing officer of a large fund house.
One of his peers termed it “terrible times”. “The industry has stepped up its awareness programs on a massive scale. But despite (this) being almost half a decade, the fruits are nowhere to be seen,” he says.
“We, as an industry, have always been telling investors to invest in equities with at least a three years’ time horizon. Now, we have no answers,” says the chief executive officer of a public sector bank-sponsored asset management company.
Earlier this year, chief investment officer (CIO) of a foreign fund house has bluntly said, "This is too much now. Equities are going nowhere and investors' confidence in stock markets are at an all time low."
What is more damaging for the industry is their profit margin being getting marginalised. Equity segment, which is dominated by retail and HNI's money to an extent of as high as 90% of the entire assets, earns the highest for the fund houses in terms of management fees - ranging 2-3 percentage points.
Being retail, the asset is far more stickier than any other asset classes. However, this sticky money is now flowing out with a higher pace than fresh money coming in. Several fund houses, Business Standard spoke to, said that in 2012-13 they might get a hit on their profits.