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Indian markets have become volatile ahead of the results of the General Elections on June 4. While equity indices slumped last week, they have managed to put up a decent show this week.
Data shows that Foreign Institutional Investors (FIIs) are playing safe and lightening their positions ahead of the subsequent phases of elections and vote count.
Meanwhile, mutual fund inflows are also witnessing mixed trend. As per data for April month, there was a huge drop in large-cap fund inflows. On the other hand, large-cap fund flows had jumped in the previous month of March.
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Overall, equity mutual fund inflows fell 16 percent to Rs 18,917 crore during April on a fresh slump in investments into large-cap funds, according to the data released by the Association of Mutual Funds of India (AMFI), the industry trade body for mutual funds on May 9.
Further, small-cap funds, which saw net outflows for the time in 30 months in March, saw net investments of Rs 2,209 crore in April.
There were expectations that the small-cap funds may continue to see outflows. However, that was not the case.
To get a sense of why equity markets have turned volatile, Moneycontrol spoke to Atul Mehra, Fund Manager at Motilal Oswal Mutual Fund. He also shared insights on how investors should tread the markets given the uncertainties and where one can deploy Rs 10 lakh in this market.
Here are a few points that Mehra highlighted:
• Mutual fund investors are moving towards mid-cap and small-cap segments due to strong market sentiment.
• Large-cap fund inflows may resume post-election outcome, as FIIs seek decisiveness.
• India's growth narrative remains strong, with potential for continued growth despite election uncertainty.
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• Investors should focus on long-term asset allocation and wait out the election outcome, rather than trying to speculate on the event.
• Earnings season has been mixed, with banking numbers strong but near-term demand outlook little changed.
• Win for the incumbent government with simple majority seen as positive for market.
• Near-term risk is the election results, with adverse outcome potentially impacting the markets.
• Banking sector could do well if larger fund flows come after elections.
• For Rs 10 lakh investment, allocate 50-60 percent to large-caps, and 40 percent to mid-cap and small-cap segments.
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