 "Equity MFs see 35th consecutive month of inflows, sectoral funds lead the way")
Equity-oriented mutual funds started off the year on a positive note with robust inflows of Rs 21,780.5 crore in January 2024, marking it the 35th consecutive month of net inflows and also the highest since March 2022.
The net inflows in January 2024 were about 28 per cent higher than the net flows seen in December 2023 (Rs 16,997 crore) despite a volatile month.
“Strong macroeconomic growth outlook, stable earnings have sustained investor interest in equity mutual funds across all segments,” said Venkat Chalasani, chief executive of the Association of Mutual Funds in India (AMFI)
The equity segment was also aided by three new fund launches in January 2024, which garnered Rs 967 crore cumulatively.
"While FPIs pullled out from equity in January, domestic investors show highest interest in January vs entire FY24 - both in terms of number of folios and net inflows in equity. Total equity folios have increased by 3.3% in Jan 2024, highest growth in absolute and percentage terms in the last nine months. Owing to both higher inflows and lower outflows in January, net inflows have increased to Rs 21,781 crore. This is up 28% from December and up 73% from average inflow of last eight months," said Kislay Upadhyay, smallcase Manager, Founder - FidelFolio Investments
Among the equity asset class, the Sectoral/Thematic Funds category saw the highest inflows to the tune of Rs 4,804.6 crore. The category also saw the launch quant Commodities Fund during the month which garnered Rs 174 crore. "Among equity asset-class, this category has now reached 150 schemes which is the highest. Therefore, the quantum of flows in this category cumulatively is typically higher than in the other categories," said Melvyn Santarita, Analyst, Morningstar Investment Research India Private Limited.
The small cap category continues to see robust flows as it witnessed net inflows of Rs 3,256.9 crore in January 2024, which was the second-highest among the equity categories. Similarly, the Midcap category witnessed net inflows of Rs 2,330.1 crore, almost similar to the net inflows seen in December 2023 (Rs 2,338 crore).
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"While gross purchases in the small-cap category continued to be robust over the month, the redemptions in small cap category were the third largest among the equity categories possibly due to investors opting to book profits on the back of a sharp uptick in the performance of this category," said Santarita.
The multicap category saw the third-highest flows in January 2024 among the equity categories- Rs 3,038.6 crore aided by the launch of DSP Multicap Fund, which garnered Rs 683 crore. The only category in equity which witnessed net outflows was the Focused Fund ( Rs 201 crore) despite witnessing the launch of Old Bridge Focused Equity which garnered Rs 110 crore.
Interestingly, the large cap category saw its highest flows in 19 months with net inflows of Rs 1,287 crore in January 2024.
"Both the midcap and the small cap indexes have seen a sharp rally over the last 6 months and 1 year. Consequently, investors have also flocked to these categories with ever-increasing flows. Investors should note that while both the midcap and the small cap categories have the potential to deliver good returns, these categories inherently are volatile with sharp drawdown risks. Therefore, investors should have a long-term time horizon while investing in these categories. Opting to invest in these categories via the SIP route is a good way by which investors can ride the volatility whilst dollar cost averaging over long periods," cautioned Santarita.
Multi Asset Allocation, which belongs to the Hybrid asset-class, witnessed its highest ever flows in a month with Rs 7,079.5 crore. The category was aided by the launch of three funds in January 2024 (Bandhan Multi Asset Allocation Fund, Mirae Multi Asset Allocation Fund and Sundaram Multi Asset Allocation fund), which cumulatively garnered Rs 4,247 crore, showed data analysed by Morningstar.
Fund houses continued launching more multicap funds and passive funds in January. Smallcap fund launches halted for the first time in three months.
"Sectoral/thematic and small-cap oriented funds were the primary contributors in January with inflows of Rs 4,804 crore and Rs 3,256 crore, respectively. However, this was lower than the previous month's flows. Multi-cap category funds also witnessed a significant increase, reaching Rs 3,038 crore in Jan’24 from approximately Rs 1,852 crore in Dec’23. Large caps demonstrated positive contributions this month, reversing the net outflows experienced in December 2023. This shift in trend is in line with valuation differentials among large v/s mid and small caps, suggesting that large caps/flexi caps oriented schemes may attract higher flows in the future," said Akhil Chaturvedi, Chief Business Officer, Motilal Oswal AMO Asset Managementsset Management Company.
January 2024 also saw a shift in investor sentiment towards funds. Following two consecutive months of net outflows, these funds saw a turnaround, witnessing net inflows of Rs 76,469 crore in January 2024 as against net outflows of Rs 75,559.9 crore in December 2023.
"The primary driver behind this surge in inflows was the liquid fund category, experiencing a notable revival. The significant net inflows were seen in Overnight, Liquid and Money Market funds. Liquid funds recorded the highest net inflows of Rs 49,468 crore, followed by Money Market funds that saw net inflows of Rs 10,651 crore and Overnight funds with a net inflow of Rs 8,995 for January 2024. Other categories with less than one year of maturity such as Ultra Short Duration and Low Duration funds, also experienced net inflows," said Nehal Meshram, Senior Analyst – Manager Research, Morningstar Investment Research India Private Limited.
The inflows into Corporate bond, Long Duration, Gilt and Long to Medium Duration confirms that investors are now taking bets in these categories, fuel by growing anticipation of interest rate easing, added Meshram.
"Out of the Rs 1.23 trillion of net flows into mutual funds in January 2024, nearly 62% was accounted for by debt fund inflows, while active equity funds, passive funds and hybrid funds accounted for a combined 38%. Debt fund flows tend to be volatile due to treasury flows, but sharply lower fiscal deficit pencilled in Interim Budget 2024 could revive interest in long-term debt funds," said IIFL in a note.