Mutual fund equity schemes have seen a a 12 per cent decline in funds raised during the first five months of 2023, amounting to ₹1.57-lakh crore compared with the ₹1.78-lakh crore recorded in the same period last year. This decline can be attributed to investors’ worries over high market valuations and their apprehension of a significant market downturn.
Redemptions from equity schemes in the industry have jumped 23 per cent in last five months to ₹98,274 crore against ₹80,178 crore registered between January and May last year, according to data sourced from the Association of Mutual Funds of India (AMFI).
Arun Kumar, Head of Research, FundsIndia, said domestic flows weaken whenever the market moves close to a record high as investors expect a sharp correction to follow. In the last four times, when the markets came close to their all-time highs it was followed by a 10-15 per cent correction and most investors tend to extrapolate this to delay their investments, he added.
In the last few weeks, equity markets have rallied by about eight per cent and are close to their previous all-time high levels as domestic and foreign institutional investors who usually take contradicting views have all turned bullish.
Light at end of the tunnel
Domestic institutions, including mutual funds and insurance companies, have jumped on the bandwagon of the bullish market trend alongside foreign portfolio investors, thanks to a steady influx of funds through systematic investment plans (SIPs). This surge in capital has propelled the markets to unprecedented levels.
SIP inflows in the last five months jumped 18 per cent to ₹70,295 crore against ₹59,432 crore recorded last year.
Also read: Maharashtra and Delhi account for bulk of MF investors
VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said FPIs have pumped in ₹43,838 crore in May and topped it with investments of ₹16,405 crore till June 17. There is a near consensus among FPIs that India has the best earnings growth story among the large emerging economies and they are all geared to exploit this potential, he said.
Allaying concerns, Kumar said even if the equity market moves at the pace of expected corporate earnings growth of 12 per cent per annum, the indices should double in six years, quadruple in 12 years and grow 10-fold in next 20 years.
Between 2018 and 2020, Nifty hit all-time high of about 12,000-level three times and subsequently fell 15 per cent, 12 per cent and 38 per cent thereafter. However, from there it gained a whopping 50 per cent to a new high of 18,162 in September 2021, as per FundsIndia data.