New inflows into Mutual Funds may stop

Mumbai: Supported by strong inflows from small investors, the domestic mutual funds have invested a total of Rs 94,783.12 crore in the equity markets in 2017 till date, almost three times higher than the investments made by foreign portfolio investors. 

During the period, overseas investors made a net investment of Rs 30,944.99 crore in Indian equities. 

With the equity markets trading at their historic highs, experts are little cautious in their outlook about market receiving further liquidity support from mutual funds as they feel that any delay in growth recovery could halt the pace of fresh inflows into mutual fund equity schemes.

“The markets have trended higher based on hopes. All those hopes could turn into despair if there is no meaningful recovery in corporate earnings growth. In such a scenario, fresh investments into mutual fund equity schemes could also slowdown going forward,” said Ambaressh Baliga, senior research analyst.

The net investment made by mutual funds in October has moderated to Rs 6,413 crore from Rs 17,941 crore and Rs 17,457 crore made in August and September 2017. 

According to Christopher Wood, MD and equity strategists at CLSA, the fresh issuances of equities lined up in coming days could also suck up some of the liquidity in the secondary market. 

In his weekly report titled ‘Greed & Fear’, Mr Wood said, “This new supply is coming at a time when the stock market is trading at the top end of the historic valuation range. The other risk is that foreign investors have turned net sellers of India since August. The foreign caution is explained in part by the pending supply and high valuations. Global emerging market investors over the past year have also been reducing longstanding Indian overweights to add to China and tech exposure in Korea and Taiwan where the earnings trends have been much more positive”.