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Last Updated : Sep 15, 2020 11:54 AM IST | Source: Moneycontrol.com

Redemptions and reduced inflows push equity MFs to exit stocks

Foreign institutional investors continue to repose increased faith by buying more equities

Allirajan M

Even as FIIs (foreign institutional investors) are pumping money, sending the stock markets soaring, equity mutual funds (MFs) have turned sellers on the bourses. They have net sold shares to the tune of nearly Rs 20425 crore or about $2.8 billion since the beginning of July, data with markets regulator SEBI showed.

In contrast, FIIs have net bought stocks worth about Rs 51133 crore or nearly $7 billion during the timeframe.


Bluechip index soars

The Nifty surged 10.3 per cent in July-August. The index recorded gains for the third successive month in August. This was aided by huge FII inflows of $6.1 billion in August, the highest monthly inflow into the stock markets in 10 years.

While equity MF investors capitalised on the market rally by taking profits off the table, inflows into equity schemes have also reduced considerably, pushing asset managers to hit the exit button, senior officials with fund houses say. The contribution of systematic investment plans (SIPs), the mainstay of equity MF inflows, declined for the fifth consecutive month to around Rs 7792 crore in August.

Redemptions or investor exits in equity MF schemes increased 11.6 per cent month-on-month to Rs 18558 crore, leading to net outflows of nearly Rs 4000 crore in August.

Withdrawals increase

Redemptions had topped Rs 16622 crore, resulting in net outflows of Rs 2480 crore in July, the first outflow in 52 months, data with the Association of Mutual Funds in India (AMFI) showed.

“Redemptions have picked up as markets have gone up,” says Chandresh Nigam, managing director (MD) and CEO, Axis MF. “Inflows (into equity MF schemes) have also been weak now when compared to six months ago,” he says.

“Mutual funds are being cautious as they are not getting fresh inflows,” says Sunil Subramaniam, MD, Sundaram MF. Since fresh money is not coming in a big way, fresh purchases of stocks are not being made, he says.

Fund managers have also made redeployments by moving money to fresh issues. “Equity MFs deployed funds in the primary market (IPOs) and QIPs (qualified institutional placements) in the last two months by pulling money out of secondary market,” says a senior fund manager with a top fund house. Apart from focused funds, sectoral and tax-saving schemes that saw combined net inflows of about Rs 404 crore, every other open-ended equity MF category recorded outflows in August.

Multi and large-cap schemes bled the most, witnessing net outflows of a cumulative Rs 2711 crore during the month compared with outflows of Rs 1398 crore in July, AMFI data showed. Stock markets have seen a sharp rally in the last two months following the easing of restrictions imposed to curb the COVID-19 pandemic.

Though fund managers say that the current market valuations are not a concern, they believe that the run-up in a few stocks that form part of the benchmark Sensex and Nifty has made fresh deployments in select fund categories a tough proposition. “Mutual funds should ideally have a diversified portfolio. They can’t be overweight on a few stocks,” Subramaniam says.

Since there is a lot of uncertainty about the strength of the economic recovery, fund houses are staying clear of big deployments, say officials. “Business conditions have not been good. The sentiment is still not positive,” Chandresh says.

(The writer is a freelancer)
First Published on Sep 15, 2020 10:19 am