COVID effect: Mutual funds pull out ₹17,600 cr from stocks in Jul-Aug

In a massive fund swing, mutual funds (MFs) have pulled out ₹17,600 crore from stock markets in July-August mainly on account of negative sales in equity-oriented schemes.

This comes against the backdrop of the coronavirus pandemic-related disruptions, a sharp slowdown in economic activity across the globe and volatility in equity markets.

Prior to the withdrawal, MFs had made a net investment of ₹39,755 crore in stock markets during January-June 2020, data available with the Securities and Exchange Board of India (SEBI) showed.

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“The recent withdrawals by mutual funds can be attributed to the negative fund flows in equity mutual fund schemes since the last two (July-August) months,” said Divam Sharma, co-founder of Green Portfolio, a SEBI-registered portfolio management services.
He further said some investors had been cautious post the recent rally in markets while others have allocated their capital to direct equity investments which can be observed in the massive demat account opening numbers in the past few months.

Alok Agarwala, chief research and investment officer at Bajaj Capital, said mutual funds withdrawal from equities during July-August was driven by negative net sales in equity-oriented schemes.

Equity and equity-oriented mutual fund schemes saw massive net outflows during the period which could have been driven by investor concerns over expensive valuations and disbelief in the recovery, he added.

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Equity-oriented mutual funds witnessed a cumulative net outflow of ₹6,450 core in July and August while hybrid funds too saw a cumulative net withdrawal of ₹12,121 crore over the same period.

These could be the reasons for mutual funds to withdraw assets from the equity markets since June, said Himanshu Srivastava, associate director – manager research, Morningstar India.

Harshad Chetanwala of My Wealth Growth also said the redemption in equity-diversified funds and equity-oriented hybrid funds categories were higher in the past two months than the inflows as investors booked profits because stock market surged sharply.

“Also, since currently most of the equity diversified funds are almost fully invested, they have to pull out from the market to take care of the net outflow,” he added.

No fresh inflow

Agarwala said fresh inflows in equity mutual funds have declined post COVID-19 while outflows kept rising. In fact, monthly SIP (systematic investment plans) inflows have fallen below Rs. 8,000 crore post COVID-19.

On the other hand, mutual funds have invested close to ₹83,000 crore in the debt markets during the period under review. This could be due to debt mutual fund categories such as low duration, money market, short duration, corporate bond, floater and banking & PSU funds saw huge inflows in this period.

Gopal Kavalireddi, head of research at FYERS, said the coronavirus pandemic had resulted in severe job/income losses and low economic activity, affecting financial performance of companies across the board. Hence, investors decided to redeem their mutual funds and conserve cash, opting for income or debt-oriented schemes.

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As per the data, MFs pulled out ₹9,195 crore in July and ₹8,400 crore in August. However, they put in a net sum of ₹39,755 crore in the first six months of the year. Of this, a staggering ₹30,285 crore was invested in March.

Srivastava said higher investment in March could be attributed to equity mutual funds buying into the stocks during the significant market correction in the month, which resulted in equities being available at relatively attractive valuations.

Consequently, allocation funds, particularly say dynamic allocation and aggressive allocation funds would have rebalanced their equity portion. Such funds would have increased their allocation to equities, he said.

However, the surge in markets post that would have prompted these allocation funds to cut their exposure in equities as a rebalancing activity in order to maintain an optimal equity allocation in their portfolios. In addition to that, surging markets have also provided a profit booking opportunity for investors, he added.

General perception

The general perception among experts is that the situation also reflects the sentiment of the individual and medium investor who would not want to take a high to very-high risk during this uncertain times. The opening of individual demat accounts is seen as a positive sign as more and more people could be becoming hands-on in the share market.

(With inputs from Agencies)