June sees second best equity MF inflows of $1.92 billion

The June net inflows are second only to Rs 137 billion ($3.5 bn) seen in January 2008. Cumulative net inflows of the past 14 months of Rs 1,041 bn ($17 bn) have now surpassed cumulative inflows of the preceding 12 years between January 2002-April 2014 (Rs 934 bn) in nominal terms. 

In addition, this is the first instance of 14 straight months (May 2014-June 2015) of net inflows, it said. As a consequence of strong inflows and valuation effect, the assets under management (<g data-gr-id="28">AuM</g>) for equity funds (Equity+ELSS) in June 2015 has shot up to a record level of Rs 3,723 bn ($58.3 bn). In addition, the share of equity <g data-gr-id="29">AuM</g> in the overall mutual fund <g data-gr-id="30">AuM</g> has risen to 32 per cent against 20 per cent in April'14, it said.

As a corollary, the share of debt <g data-gr-id="36">AuM</g> (fixed income+liquid+gilt) in overall <g data-gr-id="37">AuM</g> has contracted to 64 per cent against 77 per cent in April 2014, the report said. Net buying of domestic MFs in June 2015 at Rs 94.5 bn ($1.5 bn) was the highest monthly equity investment by MFs since at least April 2007. Strong investments by MFs coupled with the third straight month of investments by domestic institutional investors (DIIs) ex-MF (chiefly insurance companies) was instrumental in resilience of Indian equity in June 2015 with Sensex holding steady at -0.1 <g data-gr-id="38">per cent</g> during the month, while Asian peers such as China-A, China-H, Indonesia, and Taiwan were down anywhere between 4 per cent and 7 per cent during the month, it said.

Over the past 14 months, while equity MFs have witnessed net inflows of $17 bn, they have in turn invested a cumulative $10.3 bn into equities, implying an approximate cash accretion of $6.7 bn (before dividend payout) during this period. "We believe that the incremental cash accretion, coupled with any further inflows should provide a safety net for Indian equities as and when FII flows from EM pull back in response to Fed liftoff," the report said.

"While the case for structurally sustainable inflows into equity MFs remains intact, in 2HFY16 equity MF inflows may abate, primarily due to a robust pipeline of tax-free bonds amounting to Rs 400 bn ($6.3 bn). "However, given the strong undercurrent in the transition of household savings from physical to financial assets (underpinned by sustainable positive real interest rate), we believe that such moderation may be short-lived," it hoped.