Mutual fund investors ease off buying pedal as FPIs make comeback

Domestic funds see lowest net buying in four months

Mutual funds’ (MFs’) equity buying hit a four-month low in June at Rs 20,359 crore as stocks extended their winning streak from election-day lows, providing fewer opportunities for money managers to bargain hunt.

Positive inflows from foreign portfolio investors (FPIs) after two months and a potential go-slow in net inflows into equity schemes may have contributed to the moderation in MF buying in June.

MFs had purchased equities worth Rs 48,099 crore in May 2024, marking the highest-ever deployment in the equity market in a calendar month. In March and April, they netted Rs 44,233 crore and Rs 32,824 crore in buying, respectively.

 

Some experts credited the June decline to profit booking.

“June 2024 was pivotal with the declaration of election results. A lot of money was invested with the hope of booking profits in the election month. The market is currently fairly valued, and steady inflows into systematic investment plans (SIPs) are expected,” said Feroze Azeez, deputy chief executive officer (CEO) of Anand Rathi Wealth.

Key benchmark indices posted their highest gains in six months in June.

National Stock Exchange Nifty 50 and S&P BSE Sensex surged nearly 7 per cent during the month despite a downturn on verdict day (June 4). The market was supported by a reversal in foreign investments. FPIs bought a net Rs 24,387 crore worth of stocks last month vis-à-vis a pullout of Rs 22,159 crore in May.

The decline in MF investments in June mirrors trends seen over recent years. Investors typically allocate more to equity funds during market corrections and hold back during phases of sharp run-ups.

However, MF executives and investment advisors caution that this strategy may not suit everyone unless investors have an overtly aggressive equity exposure.

“In an economy poised to double growth in the coming years, we expect the market to reach new highs. It’s prudent to stay invested according to your asset allocation. Exiting the market means forgoing the compounding power of the Indian economy,” said Swarup Anand Mohanty, vice-chairman and CEO of Mirae Asset Investment Managers India.

Investment advisor Vishal Dhawal advised investors to adopt a staggered approach in the current scenario to mitigate the impact of short-term volatility.

“Valuations are at a premium. In such periods, investors with shorter time horizons face higher risks. The recommended approach is to enter with a longer-term horizon through SIPs or systematic transfer plans,” he said, adding that choosing to stay on the sidelines could be risky unless investors are already overexposed to equities.

Despite the sharp month-on-month decline, MF equity purchases in calendar year (CY) 2024 are on a par with record levels seen in CY 2022. MFs have bought shares worth Rs 1.83 trillion so far in CY 2024, compared to Rs 1.86 trillion in CY 2022. The previous year’s total was Rs 1.76 trillion, according to data from the Securities and Exchange Board of India.