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The Indian capital market continues to hog the spotlight on the back of growing retail investor participation. Even the deadly combination of sticky, elevated inflation and slowing growth in the Indian economy that is quizzing policymakers is being brushed aside by Indian investors.
Check out the latest data released by the Association of Mutual Funds of India (AMFI). The monthly Systematic Investment Plan (SIP) flows, a household name now, have climbed over three times since FY2020 to the current Rs 25,320 crore in November – the second consecutive month when flows were above Rs 25,000 crore. The number of SIP accounts too scaled an all-time high of 10.2 crore in November, rising continuously on a month-on-month basis.
That the country’s gross domestic product (GDP) growth rate has been faltering was underscored by the past two quarters’ figures. September quarter’s GDP growth at 5.4 percent came well below forecasts of 6.7-7 percent. Besides, there are several red flags raised – manufacturing slowdown, weak consumer demand, sluggish private investment and government spends and of course, erratic exports -- which raise doubts over the ability of growth to accelerate and end at even the latest projection of the Reserve Bank of India (6.6 percent). Weighing down on public sentiment is the rising inflation that surged to a 14-month high in October, driven by food prices. This figure again breached the RBI’s target of 4 percent. All this has started to show in the corporate revenue and profit growth of listed companies. In an earlier Panorama, we had highlighted that over 65 percent of NSE100 (Nifty + Next 50) firms that had reported numbers, 48 percent have seen a miss greater than 4 percent in earnings growth (in Q2 FY2025), the highest since March 2020! As a result, analysts have slashed their earnings estimates for the full year FY2025.
Dismal news headlines and management commentary are also a negative factor for investors.
Equity markets are witnessing selling and the benchmark indices have lost steam since September (Nifty down 9 percent and Nifty mid-cap is down 12 percent), when growth concerns became more pronounced.
Yet, gross SIP flows continue unfettered. However, some market analysts have highlighted that a marked 79 percent stoppage ratio in SIPs shows that the mood on the Street is turning cautious. Others differ in that the stoppage is in some specific schemes such as sector or thematic ones, where investors may not wish to renew exposure or may want to take profits off the table.
That said, gross flows continue to be high with most of it being poured into equities -- growth oriented and hybrid schemes. “While the quantum could moderate, the inflows may continue to be healthy as MFs have emerged as a mainstream investment vehicle. Households are increasingly favouring MFs to bank deposits which hitherto were the most preferred vehicle for parking savings,” says Neha Dave from MC Pro Research in this article. It also has insights into companies that are poised to ride the bullish sentiment prevailing in the mutual fund industry.
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