Mutual funds pip FIIs in net investments

Money put in by both MFs & FIIs has been strong this year, helping benchmark indices rise 20%

Mutual funds (MFs) have surpassed foreign institutional investors (FIIs) in net investments in Indian stocks in 2017 after the latest bout of selling by the latter. Until last week, year-to-date investments of FIIs were more than those of MFs on large inflows in February and March. MFs have accelerated their investments since April on a surge in subscriptions in equity schemes.

Last week, when the markets corrected, MFs stepped up their buying as FIIs took money off the table. On August 17, the provisional data for the last two trading sessions showed MFs year-to-date investments at Rs 59,392 crore had taken a $1.1 billion (Rs 7,009 crore) leap over those of FIIs.

At the end of July, FIIs’ year-to-date investments were at their peak at nearly Rs 60,000 crore. Since then, they have taken out more than Rs 7,000 crore from Indian stocks.

Market players said the investment figures underscored the fact that MFs had become more influential investors. “Domestic inflows will set the tone for liquidity. The importance given to FII flows in the past may not recur,” said Tushar Pradhan, chief investment officer, HSBC Asset Management.

*As of August 17

Strong buying by MFs also provided a cushion in the event of a sell-off by FIIs, experts said. “It reduces the vulnerability of Indian equities to external developments and also the cost of capital for companies,” said Abhay Laijawala, head of India research, Deutsche Equities.

MF investments have been at least three times those of FIIs in the previous two calendar years. But unlike the last two years, investments by both have been strong this year, helping the benchmark indices rise 20 per cent.

The combined flows of these two categories of investors in 2017 are more than their cumulative flows in 2015 and 2016. Further, MFs and FIIs have been net buyers on a given day 40 per cent of the time in 2017 compared to less than 30 per cent of the time in the previous two years. In 2017, the markets have closed with gains 70 per cent of the time, when both sets of investors have been on the buying side.

Strong buying by MFs is expected to continue this year, given consistent flows into equity schemes. Equity funds are sitting on a cash pile of Rs 35,000 crore waiting to be deployed in the market. “The momentum of inflows into the equity schemes of MFs indicates the financialisation of domestic savings in India, which began in earnest in 2014, is becoming entrenched,” said Laijawala.