Continuing the selling spree for the eighth consecutive month, mutual funds pulled out Rs 12,980 crore from equities in January as surge in markets provided an opportunity to book profits.
MyWealthGrowth.com co-founder Harshad Chetanwala said investors may prefer to book profits for some more time as they witness more surge in the stock market.
However, with growth-focused Budget, improving economy and vaccination drive, the equities are one of the best asset classes to remain invested at present, he added.
Overall, mutual funds withdrew a net of over Rs 56,400 crore in 2020, data available with the Securities and Exchange Board of India (Sebi) showed.
The markets, despite withdrawals from mutual funds in the past few months, have continued to rise as flows from FPIs have been robust.
Foreign portfolio investors (FPIs) have put in Rs 19,472 crore in the Indian equity markets in January after investing Rs 1.7 lakh crore in 2020.
According to the data, MFs pulled out Rs 12,980 crore from equities in January. This has taken the outflow to over Rs 94,800 crore since June.
Individually, MFs withdrew 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.
However, they invested over Rs 40,200 crore in the first five months of the year (January-May). Of this, Rs 30,285 crore was invested in March.
Morningstar India Associate Director (Manager Research) Himanshu Srivastava said, "The surge in the markets has provided investors an opportunity to book profit. That could have led investors redeem their investments, resulting in mutual funds pulling out investments from equity markets in January."
"Also, with valuation turning rich on the equity side, hybrid funds would have rebalanced their portfolio towards debt and trimmed equity portion of the fund," he added.
Chetanwala said equity mutual funds are having net outflow since the past two quarters as overall redemptions are higher than the inflows, and that is the main reason that mutual funds have to exit from equities.
At the same time, there are investors who are looking to invest in direct equities instead of MFs. Hence, the funds have to eventually liquidate their partial portfolio, he added.
Making similar views, Harsh Jain co-founder and Chief Operating Officer Groww said the markets touching new highs often brings about such behaviour. The HNI investors who after the experience from March-April 2020 are happy to see their returns climb and many have decided to book profits.
As for the redemption, it is mostly institutional investors who are withdrawing, not retails investors, he added.
According to him, FPIs have been pumping money into the Indian markets leading to higher valuations. At these levels, many fund managers rebalance their portfolio by reducing their exposure to equities and booking profits.
On the other hand, mutual funds put in Rs 11,832 crore in debt markets in the month under review.
Given the elevated valuations on the equity side, clients are realigning their asset allocation and thus more investments are flowing into the debt markets, Srivastava said.