Fund flows: Equity investors stay the course

Mar 12, 2023

As per the latest data provided by the Association of Mutual Funds in India, net inflows into mutual funds dipped in February as compared to January.

Gold Exchange Traded Funds

Despite witnessing outflows across most markets, Golf ETF’s witnessed inflows to the tune of Rs 165.42 crore. This was largely backed by a small correction in local gold prices. The demand for physical gold in India is largely driven by the festival and wedding season. With ETF’s, the demand largely arises when there is a correction in prices. Despite being a sizeable market when it comes to physical gold, Gold ETF’s still comprise a small percentage of the overall Indian market. Having said that there are marked advantages of buying Gold ETF’s.

Debt Funds

Debt funds continued to witness outflows for a third month in a row, with the total outflows being pegged at Rs 13,815.23 crore. The Overnight Funds category witnessed the largest inflow of Rs 2945.84 crore among debt fund categories, followed by the Corporate Bond, Dynamic, Gilt and Short Duration categories.

With the central bank’s focus on moderating inflation, the monetary policy has been tailored ensure a disinflation process. Despite expectations around the February rate hike of 25 basis points likely being amongst the last, largely owing to a moderation around inflation, investors are yet to see evidence of this. This also leads to investors looking at funds with a shorter duration as these offer lower volatility. Moreover, an increased focus towards other asset classes, and the opening-up of newer avenues have also likely led to investors preferring these over debt fund categories. As the Indian market continue to witness growth, a change in the rate hike cycle will likely bring investors back to debt funds.

Equity Funds

Equity funds witnessed inflows to the tune of Rs 15,685.57 crore during the month of February 2023. All equity fund categories across the board witnessed inflows with sectoral/thematic funds and small cap funds leading.

The month of February was an interesting one as markets corrected based on concerns around rate hikes, high inflation, geopolitical tensions, and signs of a global slowdown. A weakening rupee also placed additional pressure, leading to a fall in the indices. Fluctuations in the stock prices of Adani too had an impact on the indices that it was a part of. A look at the indices shows that all of them ended the month in red, with the Metals index leading the fall.

Despite this fall in the markets, investors seem to be making conscious decisions, with their overall preference towards investing in dips becoming evident.  Domestic investors continue to place confidence in the market, as broader economic indicators remain favorable towards the India growth story. This is despite the FII selling that we’ve witnessed in the market over the past month.

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