MFs on buying spree for 2nd month in a row, infuse Rs 5,526 cr in equities in April

Continuing their buying spree for the second straight month, mutual funds invested Rs 5,526 crore in stocks in April with fund managers sensing opportunities after some consolidation in the market.

Investment by mutual funds (MFs) in equities will continue in coming months seeing the increase in user growths as multiple fintech players are entering into this space, Kaushlendra Singh Sengar, founder and CEO at INVEST19, said.

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Alok Aggarwala, Chief Research Officer, Bajaj Capital, is also of the view that this bullish stance to continue as valuations moderate somewhat post FY21 earnings and the consolidation provides investors with an opportunity to accumulate equities.

Another factor driving this stance is the softening of bond yields from March onwards, forcing investors to flock to equities in search of higher returns, he added.

According to Sebi data, MFs put in a net amount of Rs 5,526 crore in equities in the month of April, much higher than a net sum of Rs 4,773 crore invested in March.

This was the first such fund infusion by MFs in 10 months.

Prior to the inflows, mutual funds had been withdrawing money from equities since June 2020, data available with the Securities and Exchange Board of India (Sebi) showed.

"We have witnessed 15.8 per cent monthly investment growth by mutual funds into equities last month as volatile stock market pushed investors to invest via equity mutual funds to reduce risk," Sengar said.

Alok Aggarwala, Chief Research Officer, Bajaj Capital, said mutual fund flows are generally a reflection of investor flows in the respective mutual fund schemes.

Domestic investors had been taking out money from equity mutual fund schemes since July 2020 and March 2021 was the first month when the trend changed.

In addition, spike in SIP flows was witnessed in March rising to Rs 9,182 crore from Rs 7,528 crore in the preceding month. Hence, the positive flow by mutual funds in equities was witnessed in March, he said.

Though the data is not yet out, but this trend of net inflow in equity mutual fund schemes seems to have continued in April 2021 too, leading to positive flows by mutual fund, he added.

"The month of April witnessed a surge in the number of COVID-19 cases that lead to some minor corrections in the markets, however this was followed by quick recoveries as well. Mutual funds used this fall in the market to buy new stocks resulting in increased inflow in the equities even in the month of April-2021," Gautam Kalia, Head - Investment Solutions, Sharekhan by BNP Paribas, said.

Furthermore, there have been positive flows in mutual funds schemes in March and April that provided fund managers with additional liquidity to manage, he added.

Month-wise, MFs withdrew Rs 16,306 crore from equities in February, 13,032 crore in January, Rs 26,428 crore in December, Rs 30,760 crore in November, Rs 14,492 crore in October, Rs 4,134 crore in September, Rs 9,213 crore in August, Rs 9,195 crore in July and Rs 612 crore in June.

These outflows were mainly due to profit-booking by investors amid rally in stock markets.

However, MFs had invested over Rs 40,200 crore in the first five months (January-May) of 2020. Of this, Rs 30,285 crore was invested in March 2020.

The latest investment by mutual funds could be attributed to positive flows in previous month and some consolidation in markets continues to give opportunities to fund managers to invest, Harshad Chetanwala, co-founder of Mywealthgrowth.Com, said.

"If the fears of Covid increases among global investors, one could see more outflows on FPIs side, this can result in some more volatility. Investors may like to use this volatility or consolidation as an opportunity to invest in future as well," he added.

According to Rahul Shah, co-head of research at EquityMaster, the key job for any fund manager, at least in the medium term, is to strike the right balance between aggression and conservatism.

There are times when he should be more aggressive and there are times when more conservatism is called for.

"The behaviour of the funds in the last one year has baffled me somewhat. They were withdrawing money from equities when it was time to turn aggressive. And now when the situation calls for conservatism, they are directing funds into equities," Shah said

"I just hope there isn't more withdrawal if and when there is a correction in the market," he added.

On the other hand, mutual funds put in nearly Rs 21,600 crore in debt markets in the month under review.

However, Foreign Portfolio Investors (FPIs) have pulled out net sum of Rs 9,659 crore from the Indian equity markets in April after investing Rs 10,482 crore in the preceding month.

They had invested Rs 25,787 crore in February and Rs 19,472 crore in January.