Mutual funds remain net-sellers for second straight month

Redemptions force funds to sell stocks amid market surge

Despite buoyancy in stock markets, mutual funds have been net sellers of equities for a second straight month, on the back of withdrawals by investors and profit booking by fund managers. So far this month, mutual funds have been net sellers of more than Rs 300 crore — first back-to-back monthly net selling after two years. But selling this month has been muted compared to the last month (March), when funds had sold stocks worth Rs 10,200 crore.

The sell-off is due to withdrawals and moderation of inflows into equity schemes after a robust period of over 20 months. In March, equity schemes (excluding ELSS) saw net outflows of over Rs 3,000 crore. (Investment in ELSS, or Equity-Linked Savings Scheme, is qualified for tax deduction. These schemes have a lock-in of three years.) Although most of April has seen net selling by funds, sector players say net buying will be lukewarm this month.

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Indian indices have rebounded 13 per cent since March 1 after Sensex and Nifty plunged 12 per cent in the first two months of the year. This led investors to redeem units worth Rs 13,000 crore in March.

Sector players had hoped that the high redemptions were a one-off event, but by the trend in the secondary market, it is likely that the redemption pressure has continued into April.

G Pradeepkumar, CEO (chief executive officer) of Union KBC Asset Management Company, said after a two-year boom, the fund sector may be seeing come consolidation in terms of flows, where investors go slow on new investments.

“Inflows to equity funds turned negative during March, first time since FY14. Inflows have anyway been weak since December 2015. Net outflows in March may be due to profit-booking,” said Kotak Institutional Equities.

Interestingly, in January and February, mutual funds were net buyers of stocks of Rs 7,328 crore and Rs 5,946 crore, respectively. The buying had provided a strong counter balance to the selling by FIIs (Foreign Institutional Investors). In January and February, FIIs had pulled out Rs 11,471 crore and Rs 8,281 crore, respectively. The recent sell-off by mutual funds had coincided with the return of FIIs. In March, FIIs net bought shares worth Rs 22,848 crore, and so far this month they have been net buyers of Rs 7,741 crore worth of shares.