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Domestic mutual funds (MFs) injected a record Rs 45,120 crore into domestic stocks in March, marking their highest ever buying in a month. This surge in domestic fund inflows took place amid a selloff in smallcap and midcap stocks, and the execution of large block trades in blue-chip companies.
The March deployment was more than three times the buying seen in the previous month.
The previous record for monthly inflows from domestic MFs was set during the unprecedented Covid-19 selloff in March 2020, when they had invested a net of nearly Rs 30,300 crore.
The sharp uptick in MF buying also pushed the overall investment from domestic institutional investors (DIIs), which include insurance firms and pension funds in addition to MFs, to a new high of Rs 56,300 crore. The previous high was also in March 2020 when they had collectively deployed Rs 55,600 crore.
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So far this calendar year (CY24), MFs have made a net equity buying of Rs 82,500 crore, nearly half of the total deployment during 2023 of Rs 1.7 trillion.
According to MF executives, there was a surge in inflows during the latter half of March as investors sought to buy the dip. “There was some pick-up in equity fund inflows in the second half of the month, leading to higher deployment in equities,” said D P Singh, deputy MD and joint CEO, SBI Mutual Fund.
Foreign portfolio investors (FPIs) were also net buyers in March, purchasing equities worth Rs 30,900 crore. Robust inflows from both MFs and FPIs during a single month are uncommon.
However, March saw hectic share sale activity in marquee companies, such as ITC, TCS, and InterGlobe Aviation.
Market players suggested that buying large quantities of stocks in these companies from the secondary market distorts prices, providing institutional investors with an opportunity to acquire some of these stocks.
MFs deployed nearly Rs 10,000 crore through block deals, with ICICI Prudential MF alone, buying nearly Rs 5,000 crore worth of ITC shares through a block deal early in March. The fund house, along with SBI MF and Nippon India MF, deployed over Rs 1,000 crore in Aster DM Healthcare, as well. SBI MF’s Rs 860 crore investment in Aavas Financiers was also among the large deals.
MFs’ equity buying is primarily influenced by three factors: Inflows from investors, changes in cash holdings, and shifts in hybrid fund portfolios between asset classes. According to a report from Motilal Oswal, the equity schemes of the top 20 fund houses were holding 5.2 per cent cash at the end of February 2024. Assuming a 5 per cent cash holding across equity MF schemes, total cash with equity fund managers translates to over Rs 1 trillion.
The equity market witnessed sharp falls in some of the sessions in March, especially in midcap and smallcap stocks. The Nifty Smallcap 100 declined over 1 per cent during six sessions. The index fell more than 5 per cent on March 13. After swinging over 12 per cent in March, the index ended the month down 4.4 per cent, while the Nifty Midcap 100 closed 0.5 per cent lower. The Nifty50 gained 1.6 per cent last month.
