Mutual Funds buying more than match FIIs selling

Jason Monteiro 24 September 2015

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.

Comments

User

C N ANNADURAI

9 years ago

Dear Sirs,

Greetings. It is a good symptom that the Mutual Fund Industry has invested Rs.36000 crores than the investments made by the FIIs during the past couple of months.

This is a good sign of investment portfolio enthused by the Indian Firms and Publics.At the same time, redemption of investments within a shorter period is of a great concern. The investors must be taught to hold the funds for a longer duration so that the Industry will flourish and yield good returns to the investors over a period of time.

Regards,

C N ANNADURAI
ARN No 72403

mathai

9 years ago

when the mf are forced to sell, fii will not be there to buy . so another big fall in the stock market is imminent. which may last pretty long. and that is when the small investor will start losing his hard earned savings

Anil Agashe

9 years ago

The faith of retail investors in market is touching. I feel most of the money may be coming from HNIs!

V ganesan

9 years ago

T his time nifty PE may be reached around 16 to 18.In the earlier bull market everything moved up but this time only high quality stocks with hogh ROE MOVED UP .Most of the stocks already down 80 to 90 percent in the last 8 years.And one more thing is retail investors not investing directly in equities aggressively .I beleive market will not crack 50 percent from peak.Maybe 20 to 25 percent is not ruled out. But market may move sideways for very long period of time until earnings recover in a big way.No need to panic.Invest only in a staggered manner and dont trade frequently

Mohan Krishnan

9 years ago

Most of retail money into MF comes into Equity MF. Small part (HNI) goes to Debt. Most retail money is driven by sales pitch of Brokers/TV ads about SIP etc. Very few retail invest based on careful rational analysis. Most of them get carried away by snake oil salesmen.

This money tends to panic when the going gets tough. I already hear murmurs within family "Last one year I lost money via SIP. I want to redeem. SIP is a fraud to lure and milk small investors etc etc.".

FIIs on the other hand operate on Global perception where presently "Risk off EM" is the theme.

May be this is repeat of small guys becoming "bag holders" for FIIs.

Probability of Nifty going down from here is very high depending upon Global factors, panic of small Indian investors etc.

Historically P/E of Nifty at panic bottoms (2003/2008) has been around 10. If such bottom comes again then we are talking about Nifty around 4000.

Will have to wait and see. But prima facie it appears "Retail will never learn (anywhere in the World)".

mathai