Moneycontrol Pro Panorama | Record MF inflow -- a boon or bane?

A significant uptick in investments over the past six months compared to the preceding period.

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The robust performance of the Indian market, in contrast to many global counterparts, can be attributed to domestic investors. Each downturn has been met with purchases from these investors, countering the selling pressure from foreign counterparts.

According to reports, equity mutual fund (MF) schemes have experienced a significant uptick in investments over the past six months compared to the preceding period. During the past six months leading up to February 2024, net lump sum inflows totalled Rs 46,200 crore. Notably, February 2024 recorded the highest inflow of Rs 11,500 crore through lump sum investments, marking the highest figure since March 2022.

This news can be interpreted in two ways. First, in a bull market, investments tend to increase as the market ascends, as evidenced by the past six months' performance, during which the Nifty index exhibited a robust 13 percent return.

However, the second interpretation raises concerns. In bull markets, the peak influx of investments often coincides with the market's peak, as hesitant investors join the fray. Was the record investment observed in February 2024 near the market's zenith?

While it's premature to conclude, market behaviour suggests that we might be nearing an intermittent peak. Despite the substantial investments in February, the market did not witness significant upward movement but consolidated, a trend that has persisted into March 2024. This consolidation is accompanied by corresponding supply, indicating a potential distribution pattern, as noted by technical analysts.

Structurally, there are signs of market weakness, notably a decline in the number of stocks participating in the rally. Moreover, with elections looming less than a month away, market sentiment is understandably jittery, notwithstanding early positive indications. Additionally, global headwinds pose a risk of dragging the market lower.

From a fundamental standpoint, the market appears slightly overvalued compared to its 10-year average. Technically, the market is confined within a narrow range, which could signify either consolidation or a distribution pattern, the resolution of which will become clearer after a market breakout from this zone.

In such circumstances, exercising caution is prudent, allowing the market to reveal its direction before making substantial commitments.

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Shishir Asthana
Moneycontrol Pro