 "Mutual fund inflows set for a record")
Between April and January, MF equity schemes have seen gross inflows of Rs 1.18 lakh-crore, only Rs 7,700 crore less than the previous record of Rs 1.26 lakh-crore during the peak of the previous bull run, in 2007-08.
Rising investments in MF's stock market-offerings - higher than even the net purchases by foreign institutional investors - signal that local investors could be a dominant investor in equities.
Foreign investors, accounting for about 40 per cent of the free-float market capitalisation of Indian companies, have pumped Rs 93,000 crore into stocks this financial year. Net inflows - after deducting for redemptions - have been a robust Rs 56,700 crore. Since the Lok Sabha election results in May, average gross inflows every month have been at least Rs 12,000 crore, while net inflows have been Rs 6,300 crore. The inflows this year have been more than double that seen in the past five years.
Sustained gains in the stock markets, improvement in the macro economy and hopes of reform from the new government have attracted investors to the sector. The benchmark indices have rallied around 40 per cent in the past year.
"The worst on the economic front in India is clearly behind us," said Prashant Jain, chief investment officer, HDFC MF. "GDP growth is improving, the current account deficit (CAD) has narrowed sharply, the fiscal deficit is slowly but surely moderating, inflation is steadily coming down. Given the likely recovery in the capital expenditure cycle over the next few years, India should emerge as not only one of the largest but the fastest growing economy as well."
Another positive for the sector is that the inflows this year are not only from existing investors. Many new investors are coming into the MF fold. The number of new equity accounts opened in the past year has been a little more than 30 million.
S Naren, CIO, ICICI Prudential MF, said: "Retail participation in the equity segment is on the back of improvement in the economic activity. Poor performance of other asset classes, including gold and real estate, has shifted investor focus back to equities. Indians are still under-invested in equities. It is an asset class that can't be ignored for long."
Though the market is hovering around record high levels and valuations are above historic averages, most MF managers are bullish about the long-term potential of the market.
"A popular observation about the markets is that these have run up nearly 40 per cent in the past one year. However, the market is up only 35-40 per cent from the previous record highs, seen six years ago. Thus, they have sharply underperformed nominal GDP growth over the past six years, in spite of the sharp move seen in recent months," added Jain.