Mutual funds have invested just Rs 1,230 crore in stock markets during the lockdown and industry experts believe they are still waiting for a good "entry point" and maintaining high liquidity for any possible redemptions by corporate houses.
Going ahead, the primary factor that will determine mutual fund (MF) investment into equity will be their own inflows from investors. This will be put to test as many retail investors are facing risk of pay cuts and job loss over the next quarter or so, said Vidya Bala, co-founder of Primeinvestor.in.
Overall, mutual funds have made a net investment of Rs 1,230 crore in stocks since the nationwide lockdown was announced on March 24 to tackle the coronavirus pandemic, latest data available with the Securities and Exchange Board of India (Sebi) showed.
MFs invested Rs 6,363 crore in stocks in the last week of March, while they pulled out Rs 7,965 crore in April. Reversing the selling trend in May, they put in Rs 2,832 crore, the data showed.
Amit Jain, co-founder and CEO at Ashika Wealth Advisors, said mutual funds are not investing big amounts in equities as they are waiting for a good entry point, which he believes will come within two months.
In addition, MFs are keeping high liquidity for any possible redemptions by corporate house as post lockdown, the 44-player industry will face a lot of redemption pressure as corporates will withdraw a lot of money, he added.
In the entire month of March, MFs made an investment of over Rs 30,000 crore on attractive valuations as many stocks hit their 52-weeks lows.
Notably, foreign investors pulled out a massive Rs 61,973 crore from equities in March and Rs 6,883 crore in April amid fears of a coronavirus-induced global recession. However, they turned net buyers in May and invested over Rs 14,500 crore.
"We have traditionally seen MFs buy when FPIs are exiting and that played out in March with MFs buying on attractive valuations as many stocks hit their 52-week low in March.
"Post that with inflows slowing from retail investors in April and also investors redeeming on an uptick post the March hit, the momentum could not be sustained. May again saw some inflows that helped MFs pump into the market," said Bala.
"We are likely to see a see-saw behaviour from MFs over the next several months," she added.
Echoing the views, Himanshu Srivastava, Senior Analyst Manager Research, Morningstar India said this could be attributed to the rebalancing of the equity portion of allocation funds, particularly dynamic allocation and aggressive allocation funds.
Such funds would have increased their allocation to equities in March when the markets witnessed sharp correction, which resulted in equities being available at relatively attractive valuations.
"However, the surge in markets in April would have prompted them to cut their exposure in equities as a rebalancing activity in order to maintain an optimal equity allocation in their portfolios. This could have caused a net outflow by mutual funds in equities in the month of April," he added.
Meanwhile, mutual funds have also been witnessing net inflows in equity-oriented schemes. Such equity-oriented funds received a net inflow of Rs 11,723 crore from investors in March and Rs 6,213 crore in April.
"Given the market scenario, MFs would have taken some time to deploy these flows. This resulted in increased levels of absolute cash in their portfolio, which these funds would have been deploying now resulting in net inflow in equities in May," Srivastava said.
Harsh Jain, co-founder and COO at Groww, said FPIs aggressively took money out of India and domestic investors infused money, seeing this as an opportunity.
Omkeshwar Singh, Head - RankMF, Samco Securities, said that risk adjusted returns expectations have become more important and inflows are getting limited to multi-caps and large-caps.
He said quality equity funds in large-cap and multi-cap space will see inflows and rest will have to wait till things normalise.Jain said stocks in the automobile sector (mainly two-wheelers and four-wheelers barring commercial vehicles), healthcare, telecom and IT with focus on artificial intelligence would find favour in terms of investment.