Equity mutual funds see steady inflows in May but growth worries linger

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Inflows into equity mutual fund schemes edged slightly lower last month as investors refrained from making big bets amidst political uncertainties back home and lingering global trade concerns.

According to data provided by Association of Mutual Funds in India (AMFI), net inflow into equity mutual fund schemes was at Rs 12,070 crore in May, down 2.7 percent from Rs 12,409 crore in April.

But the flows were significantly higher from March, when the equity mutual fund schemes garnered Rs 6,657 crore as investors shorted stocks possibly to avoid the long term capital gains tax effective from April 1.

Flows into equity mutual fund schemes declined 15 percent against the fiscal 2018 average of Rs 14,255 crore, data by AMFI showed.

Balanced funds saw inflows of Rs 2,666 crore in May compared to Rs 3,500 crore in April.

While inflows into equity funds have improved significantly since March, political developments back home coupled with global uncertainties continue to hamper risk appetite of overseas investors.

Foreign investors have reduced their stake in Indian equities following the political setback to the ruling Bharatiya Janata Party in Karnataka, rising crude oil prices, falling rupee against the dollar and disappointing results especially from public sector banks holdings.

The domestic worries also coincided with the turmoil in global financial markets amid the political chaos in Italy.

“Foreign investors have been pulling money out of India. Their overweight position on India has declined. They are still overweight but it has come down significantly. So you can tell that they have been persistently disappointed by India’s lack of growth and they are stepping aside,” Ridham Desai, head of India equity research and managing director at Morgan Stanley told CNBC-TV18 earlier this week.

So far this year, the rupee has weakened 4.86 percent, while foreign investors have bought $241.20 million and sold $4.48 billion in equity and debt markets, respectively.

While the Indian stock index gained nearly 7% in January and hit a lifetime high, it is down about 4% since then, tracking the rout in global equities as worries of a trade war between the US and China intensified.

The benchmark Sensex, which is up 4% for the year, is likely to see modest gains this year as higher oil prices and political uncertainty ahead of the general elections next year will restrain the market, according to market experts.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow