MFs invest Rs 1.3 trn in equities in 2024 on strong market performance

Mutual funds (MFs) showed strong confidence in Indian equities this year, injecting around Rs 1.3 trillion, driven mainly by significant retail investor interest and the robust performance of the stock market.

Mutual funds, which manage long-term wealth for domestic investors, prioritise the Indian market's underlying growth potential and are less rattled by short-term events like elections, which allows them to keep investing in equities, Tradejini COO Trivesh D said.

Additionally, the growing interest in systematic investment plans (SIPs) on the back of astonishing compounding stories by influencers and industry veterans has perked investors, who otherwise wish to stay away from the markets, to start participating through these mutual funds, he added.

According to the data from the Securities and Exchange Board of India (Sebi), MFs invested Rs 26,038 crore in the first fortnight of the ongoing month and Rs 20,155 crore in April. Moreover, the highest MF buying for 2024 was experienced in March, as they put in a net of Rs 44,233 crore.

Also, they invested Rs 14,295 crore in February and Rs 23,010 crore in January.

With the latest deployment, mutual funds investment in equities reached around Rs 1.3 trillion in 2024 (till May 16), the data showed.

In stark contrast, foreign portfolio investors (FPIs) have been withdrawing money from equities and pulled out over Rs 25,000 crore this year so far, owing to a volatile global environment, uncertainty over rate cuts, and profit booking.

This is a great sign for the Indian markets, symbolising the falling dependency on foreign money and the strengthening of retail individuals and DIIs, including mutual funds, to keep markets afloat.

This steady flow from mutual funds and other domestic institutional investors (DIIs) has supported the equity markets over the past few years.

Notwithstanding occasional challenges, the Indian stock markets have generally shown a positive trajectory, thus catching investors' interest.

Equity has been one of the best-performing asset classes in recent years, and consequently receiving robust flows from domestic investors like mutual funds, Himanshu Srivastava, Associate Director Manager Research, Morningstar Investment Research India, said.

For domestic investors, local markets are the most accessible investment option, which is why they continue to invest in them, he added.

"The Indian market's fundamentals remain robust. The GDP is projected to grow at a steady rate of 7 per cent for FY25, and the fiscal deficit has decreased to 5.8 per cent, the lowest level in five years.

"Additionally, the steady increase in SIP contributions, which reached a new peak of Rs 20,371 crore in April 2024, indicates that investors are becoming more disciplined and confident in the market," Feroze Azeez, Deputy CEO, Anand Rathi Wealth Ltd, said.

Sectorally, mutual funds hold maximum exposure to financial services, followed by IT and pharmaceuticals. Additionally, mutual funds have been increasing their allocation to pharmaceutical, power, construction projects and automobiles in the last one year.

Interestingly, mutual funds' ownership in NSE-listed companies reached an all-time high of 8.92 per cent in three months ended March 2024, propelled by net inflows of Rs 81,539 crore during the quarter. In comparison, the holding of mutual funds was 8.81 per cent in the quarter ended December 2023, according to primeinfobase.com, an initiative of Prime Database.

On the other hand, the share of FPIs declined to an 11-year low of 17.68 per cent as of March 2024, down from 18.19 per cent as of December 2023.

Going ahead, the outlook for mutual fund investments in equities is quite promising. Investors are increasingly favouring mutual funds over traditional asset classes like debt, which still hold the highest allocation in Indian households. This shift is expected to continue, making mutual funds a primary equity investment vehicle, Azeez said.