Mutual funds make hay even on a cloudy day

As market cracked 6% on Monday, net investment in August surpasses Rs 6,000 crore

India’s equity mutual fund (MF) managers once again stepped up their buying amid a sharp correction in the market. Unfazed by the weak sentiment resulting from fear of a global slowdown, fund managers pumped in about $1.2 billion (Rs 7,650 crore) into Indian stocks in the four sessions this week, even as benchmark indices have come off about five per cent.

The latest round of investments shows fund managers are strictly following a ‘buy-on-dips’ strategy, underscoring their faith in India’s long-term prospects.

Data provided by the Securities and Exchange Board of India (Sebi) showed fund managers bought shares worth about Rs 2,000 crore when the benchmark Sensex fell six per cent on Monday. The followed it up with another Rs 2,000 crore of investment on Tuesday and Rs 1,000 crore on Wednesday. Provisional data for Thursday show buying of Rs 2,500 crore by domestic institutions.

This compares with a cumulative investment of only Rs 2,000 crore till last week. The overall buying this month has been higher than the monthly average for this year.

Fund managers have been maintaining that 2015 will be different from previous year, adding the markets will be marked by steep volatility, throwing opportunities to pump in fresh money. So far, their strategy has delivered. They say they will keep buying during dips, as this will be useful from a medium- to long-term perspective.

S Naren, chief investment officer of ICICI Prudential Mutual Fund, believes a buy-on-dips strategy will continue, as the market will keep offering buying opportunities. “The sell-off in Indian equity markets by FIIs (foreign institutional investors) is an opportunity to buy for domestic investors,” he adds.

Robust inflows from retail investors in the equity segment are providing a strong cover to fund managers to invest in stocks. Till April 2014, they were forced to liquidate holdings to honour the rising pressure of redemptions from investors.

Since the National Democratic Alliance government came to power last year, the equity MF segment has seen net inflows of a whopping Rs 1.1 lakh crore, giving fund managers enough room to pump in money.

Prashant Jain, chief investment officer, HDFC Mutual Fund, says, “India is one of the very few countries that have a healthy external side and very strong growth prospects. Corrections led by external factors have proved to be good entry points. I believe this is another such opportunity.”

The pace of inflows into equity schemes has continued this financial year. During April-July, the sector received Rs 39,000 crore of fresh investment, double what it recorded during the corresponding period last year. Such robust inflows helped fund managers make a net investment of about Rs 44,000 crore in stocks so far this financial year; a year earlier, this stood at only Rs 13,000 crore.

“In equities, I recommend taking advantage of volatility and believe the correction provides investment opportunities,” says Ritesh Jain, chief investment officer of Tata Mutual Fund.

Currently, sector offers more than 400 equity-oriented schemes to investors managing an assets of nearly Rs 4 lakh crore.