Moneycontrol Pro Panorama | Market correction fails to deter SIPs

Mutual fund investors are showing surprising resilience amid the volatility in Indian equities and worsening macroeconomic indicators. Assets under management (AUM) in the domestic mutual fund industry increased 13.8 percent in the June quarter from a year ago. Sequentially, the AUM declined 1.7 percent due to outflows in debt schemes and mark to market losses in the equity funds, points out IIFL Securities. However, inflows in equity funds remained healthy.

“The trend of gross SIP flows continues to be healthy, with quarterly flows growing at 37 percent year-on-year and 3 percent quarter-on-quarter to Rs 36,400 crore,” add analysts at IIFL. SIP stands for systematic investment plan.

The continuing inflows into equity funds, despite the slowdown in investor account additions, is acting as a hedge against selling by foreign portfolio investors (FPIs). Perhaps, the inflows into domestic mutual funds are driven by the basic investment belief of buy low and sell high. But there are other reasons for domestic investors to retain their faith in domestic equities.

Earnings are not falling off the cliff. In fact, Bloomberg consensus estimates peg Nifty 50 earnings growth at 17 percent and 16 percent, respectively, for FY23 and FY24, points out Emkay Global Financial Services. The earnings growth is coming on a high base of FY22. Moreover, easing commodity prices, if the trend sustains, will aid domestic manufacturing and may even help the Reserve Bank of India (RBI) control inflation.

“We believe that if the RBI continues to press ahead with rate tightening, instead of easing tightening efforts on the back of the recent fall in commodity prices, it can potentially succeed in ending the inflation scare,” economists at HSBC said in a note.

Still, equity market returns are contingent on foreign portfolio flows. The Nifty declined when the pace of FPI selling intensified. The index recovered when the selling abated, reveals an analysis by Emkay.

“In the past 9 months, Nifty monthly returns have seen perfect negative correlation with a change in the direction of FPI outflows,” add strategists at Emkay.

So, while domestic investors are showing appreciable confidence in Indian equities, a sustainable recovery in the market will happen only when overseas investors resume purchases or reduce selling.

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