Marco economic data being what it is, coupled with employment data and the general downturn in consumption has meant that Indians are saving less. There have been many factors pointing to that…the CASA ratio of banks, the price of real estate (stagnant to down for the past many years), auto sales etc.
It has been broadly felt that many investors were either choosing to stay in cash or were liquidating earlier savings to tide over times … this was further underlined by the Equity Mutual Fund data release for the month of November 2019.
Only large cap equity funds have shown a small increase all other categories have shown a big fall MOM. Net inflows into equities stood at Rs 933 crore last month, this is a three year low and a whopping 85% lower than last month. All classes of funds – midcap, equity etf, balance (they normally have a large equity component) have shown a drop in the inflows in November. This I find worrying. The earlier 5 months had seen numbers coming down but it has a sort of slow grind but suddenly this month has been a rude awakening for equity inflows. The saving grace has been the SIP number which has shown a marginal increase. The possible reasons could be the stricter norms for large cap funds to invest in mid and small cap stocks. It could also be profit booking. So in a month where the markets hit a new high and amidst volatility both Sensex and Nifty have gone up by ~1% investors have booked out of equity and have definitely not put in more money to work into equities.
Credit risk funds continued to see huge outflows, November saw an outflow Rs 1899 crore. Credit defaults in NBFCs has increased fear of losing money and in FY20 AUM of credit risk funds has come down to Rs 63754 crore from Rs 79643 crore. Liquid funds too have seen a big fall MOM in inflows down to Rs 6938 crore v/s Rs 93203 crore in October – this is attributed to the exit of institutional investors in the first seven days of the month.
All in all not a very pretty picture…this is data for only month and hopefully some more clarity will emerge but its worrying for sure.
Market has so far shrugged of all worries. Domestic Institutional Investors have been largely net buyers…. a big reason for that is the SIP money that comes in every month and so far this number has held. If for any reason investors start slowing down on SIPs as well then it will be a definite reason for concern, for it will means that the steady buying that DIIs have done so far could slow down, and in a market where FIIs have been active sellers and buyers it could add a further element of volatility.
The dynamics of the Mutual Fund industry are changing, that is certain, what it will mean for markets and where it will take the indices to is a story waiting to unfold.