Chasing the big fish: MFs cast their lines for record October catch

A haul of Rs 87,000 crore nearly doubles previous record, reeling in a lifeline for stability

Mutual funds (MFs) reinforced their record monthly inflows in October with an investment of Rs 87,000 crore (up to October 29), softening the downside pressure on domestic markets. Their prior record for monthly inflows was Rs 48,139 crore in May. This unprecedented monthly buying partially countered record monthly sales by foreign portfolio investors (FPIs) of Rs 1.1 trillion last month. The National Stock Exchange Nifty 50 ended October with a 6.2 per cent decline, marking its steepest monthly drop in four and a half years.

 

So, what factors enabled the record buying by domestic money managers?

 

First, higher inflows into equity-orientated schemes fuelled the investment, with investors largely unfazed by the FPI selloff. 

 

A recent analysis by Business Standard showed that investors were putting in more money into equity schemes to capitalise on the market dip.

 

Second, fund managers utilised their large cash reserves to buy on the dip.

 

Estimates indicate that equity MF schemes were holding Rs 2 trillion in cash. A late-September report by Motilal Oswal Financial Services estimated the cash holdings of equity schemes from the top 20 fund houses at 6 per cent of their assets under management. Several large fund houses had double-digit cash levels due to high valuations.

 

Further, hybrid funds, like balanced advantage and multi-asset schemes, also added to the investment tally by shifting allocations across asset classes. These schemes, which adjust equity exposure based on valuation metrics, had reached lower equity allocations in response to high valuations.

 

MFs’ equity deployment has been robust throughout 2024, as a market rally drew strong inflows into equity schemes. So far this year, MFs have invested a net of Rs 3.7 trillion compared to Rs 1.7 trillion for all of 2023, according to data from the Securities and Exchange Board of India.

 

MFs have been net buyers for 17 consecutive months, with monthly deployments exceeding Rs 10,000 crore for the past 14 months. This steady investment has been supported by ongoing inflows through the systematic investment plan (SIP) route, with SIP inflows rising to Rs 24,509 crore in September 2024, a multifold increase since the post-pandemic period.