Against a net sales of Rs25,000 crore by FIIs over the last five months, Indian mutual funds have invested more than Rs36,000 crore
Over the past five months, foreign institutional investors (FIIs) were net sellers on most occasions. FIIs sold nearly Rs25,000 crore of Indian equities between 1 May 2015 and 22 September 2015. The S&P BSE Sensex fell by 5.27% over this period. Over the same period, domestic mutual funds picked up Rs36,550 crore worth of Indian stocks. In the month of September (till date), mutual funds invested Rs6,073 crore in stocks while FIIs withdrew as much as Rs2,755 crore.
Despite a fall of 15% on the Sensex, from the peak in March 2015, the markets continue to seem attractive to Indian retail investors. But will the buying continue if the markets continue to face volatility?
Equity mutual funds have reported consecutive month of net inflows since May 2014. Though a large portion may be moving in to arbitrage schemes, retail investors sentiment does not seem to have turned negative as yet. In August 2015, out of the Rs9,156 crore that flowed in to equity schemes, about Rs900 crore flowed in to arbitrage and equity savings schemes. This means that nearly Rs8,000 crore flowed in to equity diversified schemes. This is despite the fact that in August 2015, the markets had posted the worst performance over the past four years.
In the six months period ended June 2015, as much as Rs33,780 crore flowed in to equity diversified schemes. Equity fund folios too, have been rising steadily. Over half a million equity mutual fund folios were added in August 2015, taking the total number of folios to 33.75 million. The number of folios has increased by nearly four million since August 2014.
This data shows that despite the volatile market conditions of the past few months, mutual fund investors have used this opportunity to buy more. This continuous buying by investors has buoyed the stock market. The strong selling by foreign investors is balanced by mutual investors putting money back.
But the big question remains—for how long, will the buying by mutual fund investors continue? In CY2008, the time of the global financial crisis, FIIs pulled out a massive Rs53,051 crore from Indian equities. In the same year, equity mutual funds reported a net inflow of Rs31,054 crore. But as the market continued to be volatile, is when the mutual fund outflows began. In 2009 and 2010, equity mutual funds reported a total outflow of Rs14,475 crore. Over the same period FIIs flooded the market with a net inflow of Rs2.25 lakh crore.
As the volatility continued, investors kept on selling. Between January 2012 and December 2013, as much as Rs25,994 crore was redeemed by mutual fund investors. Over this 24-month period, FII inflows were strong, bringing in nearly Rs2.42 lakh crore.
Therefore, if the current market volatility continues, we may soon see mutual fund investors turn into net sellers from net buyers.