Taking advantage of low valuations, domestic mutual funds pumped in a staggering $11 billion in the stock market during 2015 and plan to remain bullish in the New Year to maximise the returns for their investors.
Given the sluggish trends in the real estate market and continued fall in gold prices, the mutual fund industry also expects to begin attracting a larger share of the Indian households’ savings from this year.
Mutual funds invested almost $11 billion (Rs 70,716 crore) in domestic equities in 2015, more than 2.5-times of about $4 billion infused last year, as per the latest data. Retail money flew into equities through mutual funds route supported the benchmark indices at a time when the foreign portfolio investors (FPIs) went on a selling spree.
FPIs were net buyers of equities to the tune of just $3.2 billion in 2015. Before that, they had invested $20 billion each in stock markets in the preceding three years.
“We look forward to a similar scenario like this year’s where FPIs invested $3 billion in 2015, whereas domestic mutual funds have seen strong inflows. This means that while FPIs are considerably important, it is the domestic inflows that are here to stay for the long term that will fuel growth,” Quantum AMC CEO Jimmy Patel said.
The industry players feel that the outlook remains bullish for the New Year in terms of equity markets.
“Considering softer commodity prices, muted real estate market and flattish debt market scenario in 2016, the outlook for equity in 2016 continues to remain encouraging. While the current years inflow number may not be matched, the inflows nevertheless are likely to remain positive,” Jayesh Shroff, Fund Manager (Equities) at SBI Mutual Fund said.
However, LIC Nomura Mutual Fund Chief Investment Officer (Equity and Debt) Saravana Kumar said: “Maintaining the same momentum (in terms of inflows) may be a challenge if 2016 turns out to be as volatile as the past year.”
The fund houses also saw a growing interest from retail investors, indicating an emerging shift in their investment preferences from physical assets to financial assets.
The inflows from retail category were close to Rs 1.7 lakh crore in 2015, a major upswing compared to Rs 1.3 lakh crore seen in the entire 2014.
“Retail participation has shown remarkable resilience to market volatility and we are confident that it will continue in 2016,” Reliance Mutual Fund CEO Sundeep Sikka said.
Patel said that retail participation could provide the much needed liquidity to the stock markets that have been largely driven by FPIs for the past few years.
Just 10 million people of the 1.2 billion plus population of India are estimated to be mutual fund investors.
“Equities are likely to emerge as one of the best performing asset classes over the long run and investor are expected to prefer the asset class on higher growth potential coupled with relatively lower attractiveness of alternative investment options,” he said.
Besides, equity-oriented mutual funds would remain preferred vehicle for equity market exposure. Equity assets crossed Rs 4 lakh crore mark for the first time in the history of Indian mutual fund industry, signalling the return of domestic investors taking the mutual fund route.
Overall net investment in MF in 2015-16 is more than the cumulative investment during the entire previous bull-run, which took place between 2003-04 and 2007-08.
“While we could continue to see a soaring retail participation in MFs, power reforms package announced already several times could be finally undertaken, the expectation of 2016 could be a LaNina year is favouring the Indian monsoon, inflation, Oil and Rupee balancing out and last but not the least the Fed rate hike are some factors that could influence the next year for the MF industry,” Patel said.