Investors in smaller cities line up to join stock rush

Domestic net inflows into equity mutual funds crossed $2 billion in June, the second-biggest month since January 2008

India’s mutual funds (MFs) are seeing a surge in stock investments from the hinterland, as the growing ranks of provincial retail investors help drive a two-year long rally.

Many major funds say they are seeing the fastest growth in fund flows from areas beyond the country’s 15 largest cities, while growth from more-traditional investment centres such as Mumbai has slowed.

Fund executives see more room for such growth, given investors from smaller cities account for only Rs 1.9 lakh crore ($29.8 billion) in MFs, or 15 per cent of total share assets in the country.

SMALL IS BEAUTIFUL

• Rs 1.94 lakh cr Investments from smaller cities in MFs in July
   
• 15%  Smaller cities’ investment in total  share assets in the country

A MORE BALANCED MIX
Smaller cities have a better balance of equity and non-equity assets

• 50% of the assets from smaller cities are in equity schemes, up from 43% in June 2014
   
• 27% Equity-oriented schemes accounted for of the top 15 cities assets in June, up from 20% in June 2014

 

The government has long believed that attracting investors from beyond big cities such as New Delhi is vital to direct more household savings into equities, reducing traditional investor preference for property and gold.

One such investor is Barun Mukherjee, 54, a senior operator at a steel plant in Jamshedpur, a city of about one million people in Jharkhand. Like many others, Mukherjee avoided stocks after the global financial crisis and subsequent stock slump wiped out the savings of many households.

But a month ago, he decided to invest Rs 50,000 ($783) into an MF. “MFs are providing the best returns. The market is doing well. The country’s business scene is positive and the future seems to be good,” he said.



Mukherjee is investing in stock markets that have surged 67 per cent since August 2013 when the rupee hit a record low. The surge was largely driven by foreign investors’ heavy buying. They now own nearly a third of the equity of companies in the Sensex.

Strong gains are now also starting to attract more retail investors in a country where fewer than 1.5 per cent of households put money directly into shares, compared with around 10 per cent in China and 20 per cent in the US.

Domestic net inflows into equity MFs reached $2 billion in June, the second-biggest month since January 2008. India does not have data breaking down investments by cities, but fund executives say investments from secondary centres are a major factor in the surge.

The surge is lucrative for fund houses, which can charge additional fees on funds that have at least 30 per cent of new inflows coming from smaller cities, a measure adopted by regulators to help these fund management firms to offset the higher marketing costs involved.

Axis Mutual Fund, one of the country’s largest MF, has been organising frequent roadshows and investor seminars, and today about 40 to 50 per cent of its equity inflows are from provincial centres, according to Axis chief executive Chandresh Nigam. “Investment from smaller towns is rising steadily and has helped us especially since our funds are designed for investors who are risk averse and not very savvy,” Nigam said.