 "Individual investors shun direct investing for equity MFs")
Individual investors have continued to put their trust in fund manager-led equity schemes rather than follow the direct equity route in the recent stock-market rout that started in January this year. Individual clients, including the retail, high networth and NRI investor clients, net sold equities through exchanges while at the same time stocked up on equity-diversified mutual funds as the markets reeled under pressure from the nervousness in global markets.
As per data from the exchanges, so far this year, retail investors have sold equities worth Rs 14,322 crore. On the other hand, equity mutual fund schemes have seen net-inflows of Rs 28,505 crore.
Weak corporate results, falling rupee and nervousness in global markets leading to heavy outflows by overseas investors seems to have weighed heavily on the minds of retail investors who chose to pare their direct equity holdings booking profits.
In the last one-year, individual clients have sold equities in the net worth Rs 40,678 crore. The mutual fund industry has seen inflows worth Rs 78,527 crore in the last one-year period when the markets have returned about 21%. This is despite the near 8% decline seen in the last two months.
Market experts said that in the aftermath of the 2007-08 downturn, investors had become cautious and had preferred to stay away from direct equities. Those who had stayed in direct equities in the hope of booking profits were dismayed by the sudden plunge that recently impacted markets.
“There was over-expectation to start with because of expectations that things will turn around from the second and third quarter of FY-15 itself. But all hopes on corporate earnings have fizzled out now. Many short-term traders and long-term investors have been disappointed,” said Swapnil Pawar, chief investment officer, Karvy Capital.
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But he also believes that some of the investors have been able to make money and book profits in such a market.
“You always have a set of investors who come into a rising market with the aim of booking profits later. Similarly, there are enough people on the sidelines waiting for a correction to enter the market,” said Pawar.
The recent sharp fall in global markets, particularly the Asian markets, due to nervousness on oil prices, worries about the outlook for Europe and the strengthening US dollar, led to a sudden flight of funds away from Indian markets. Market participants said that retail investors were a nervous lot and that falling markets could egg them on to sell further.
"Retail (category of investors) is clearly very nervous. This attack (on markets) has come from nowhere. If foreign investors continue their selling streak, the smaller investors will also follow suit," said Deven Choksey, managing director, K R Choksey Securities.
Data from the exchanges shows that bulk of the net-selling happened in March with the retail net-selling equities worth Rs 6,321 crore when the markets fell by about 5%. In April, individual investors were only net-sellers for Rs 11 crore while the markets fell by about 4.4%.
But some fear that mutual funds may also start losing favour among retail investors if persistent underperformance of the equities market continues. Most market researchers and experts believe that if the pain in the market continues it could see a drop in incremental flows received by MFs and insurance companies.
“Incremental flows into MFs and insurance companies may slow over a period if the markets keep on falling. Once people see the NAVs going into red, individuals are not going to put in new funds into those schemes,” said a senior official from a domestic securities firm.