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The country’s domestic mutual fund managers have continued to throw their might behind Indian equities even as their foreign counterparts have remained net sellers throughout this month.
So far this month, foreign institutional investors (FIIs) have pulled out close to Rs 6,000 crore but local funds have been buyers of around Rs 4,500 crore, helping Indian stocks stage a smart recovery from their October 2014 lows touched earlier this month.
The buying momentum was seen gathering space last week as fears of weak monsoon receded and the US Federal Reserve signaled a gradual lifting of near-zero interest rates. India’s benchmark indices rose over three per cent last week — their best weekly advance in nearly five months. Foreign investors pulled out close to Rs 3,000 crore during the week, while domestic investors bought nearly an equal amount.
The amount of investible cash available with domestic funds and sustained inflows into equity schemes every month has shifted focus from FIIs to MFs, say market observers.
The latest correction, which saw several stocks fall as much as 30 per cent from their highs, provided a good buying opportunity to fund managers to buy beaten-down stocks.
"The markets are down about 10 per cent from the peak levels seen late-January. The correction has provided an opportunity to buy or add stocks with good potential at reasonable valuations for a long-term horizon,” said Sunil Singhania, chief investment officer (equities) at Reliance Mutual Fund.
Fund managers are not ruling out more corrections but are keeping faith in the country’s long-term growth potential.
"We believe we are in a bull phase, which are prone to steep corrections. There were 13 corrections in the bull market of 2003-2008. This was the first double-digit correction since September 2013. There will be phases where some market participants might lose belief in a turnaround and exit. Those would be a good buying opportunity for others,” says Mahesh Patil, co-CIO (equities), Birla Sun Life Mutual Fund.
Domestic mutual funds are flushed with capital thanks to sustained inflows seen into equity schemes from May last year. Interestingly, despite the sharp increase in volatility and wavering of the markets since March, investor inflows have remained unperturbed. In the previous two months, equity schemes saw inflows of more than Rs 20,000 crore. Inflows in June are also expected to be strong, say industry players.
Many like Ridham Desai of Morgan Stanley said this could be the start of the domestic investment “super cycle”.
"The stage is set for a significant rise in domestic demand for Indian equities. In our view, the debate should be about how much can domestic households buy. Our estimate is for a domestic flow of $300 billion over the coming 10 years versus the $50 billion and $134 billion that households and FIIs (respectively) invested over the previous 10 years,” Desai said in a recent report. Nimesh Shah, MD & CEO, ICICI Prudential Mutual Fund too believes the share of equity as an asset class in domestic savings will only go up from current levels.
"In 2007, the bank deposit stood at about Rs 30 lakh crore, while that in the equity schemes of mutual funds it was Rs 2 lakh crore. Today, bank deposits are nearly Rs 90 lakh crore while assets in equity schemes is just Rs 4 lakh crore. This suggests that more inflows are yet to come in equity schemes if last ratio has to be reached,” he said.
