MFs pump record money into stocks

Put in Rs 72,218 crore in FY16, highest investment in the past 11 years

Despite sustained volatility through the year, the country's mutual funds (MFs) pumped in as much as Rs 70,000 crore into Indian equities in FY16, the highest investment in 11 years. The investment has been spurred by retail money mostly coming in through systematic investment plans (SIPs) as well as inflows from provident fund organisations.

MFs put in Rs 72,218 crore in FY16, compared with Rs 40,000 crore the previous financial year. In contrast, foreign institutional investors (FIIs) sold shares worth Rs 60,000 crore in FY16. Between 2010 and 2014, MFs were net sellers in the market, offloading shares worth Rs 75,000 crore.

A deficient monsoon, shaky global markets, sliding global crude oil prices and subdued corporate earnings were the key reasons that impacted Indian equities in FY16. China witnessed a slowdown, with the country devaluing its currency to put its economy on the path of recovery. The benchmark Sensex fell 9.3 per cent in FY16.

However, MF managers remain bullish. "There are a lot of global factors that will impact capital markets and the economy. Many companies are in the commodity sector or have external linkages in the form of exports. But, among many emerging markets, India perhaps has the least linkage and earnings sensitivity to global cyclical factors. This should help our markets navigate the volatility much better," said Anand Radhakrishnan, chief investment officer, Franklin Templeton Investments, India.

"While benchmark indices Sensex and Nifty stayed choppy, the mid-cap stocks rallied at least till December last year, prompting investors to put in money in mid-cap stocks," said Manoj Nagpal, chief executive officer of Outlook Asia Capital. He added that 50 per cent of the money in FY16 came in mid-cap funds, 35 per cent in multi-caps and another 10-15 per cent in large-cap funds.

In FY16 (till February), equity MFs received total inflows of Rs 75,400 crore, a record high for the sector in a year. The bulk of the money has come in through SIPs. The MF sector is getting money worth Rs 2,500-3,000 crore every month through SIPs alone, say experts.

"Most SIP investors have gone through two market cycles - good and bad - and have understood the importance of rupee-cost averaging and disciplined investing for long-term wealth creation," said Himanshu Vyapak, deputy CEO of Reliance MF. "The SIP numbers have risen, but so have their average size and tenure."

According to Vyapak, currently, half the SIPs are from what is termed the B-15 locations, meaning from other than the top 15 cities. Fund houses have been pushing aggressively into tier-II and tier-III cities, after the Securities and Exchange Board of India allowed them to charge an extra 30 basis points as part of their total expense ratio for inflows from these regions.

Market participants estimate that about Rs 9,000 crore of pension money must have come into mutual funds in FY16, with Rs 5,000 crore being Employees' Provident Fund Organisation (EPFO) money. EPFO commenced investing into Indian equities in August last year, after the government permitted the body to invest 5-15 per cent of its incremental inflow into stocks.