Indian market rallied as much as 17 percent so far in the year 2017 led by consistent infusion of funds by mutual funds (MFs) even as foreign portfolio investors (FPIs) slowed down their buying.
The domestic mutual funds pumped in over Rs 20,000 crore in the stock market during April-May, said a PTI report. The flows were largely concentrated around the mid and smallcap space, suggest experts.
The small and midcap space has been on investor’s radar for the past three years and has gained momentum since then. The S&P BSE Mid and Smallcap index almost doubled in the same period.
A similar trend was seen in the month of May. Some mutual funds invested in small & midcap stocks for the first time in the month of May which includes names like 3D PLM Software, Carbogen Amcis India, GKW, Gufic Biosciences, Meghmani Organics, PSP Projects among others, according to data given by IDBI Capital.
“The flows to mid and smallcap MFs continue to be strong. Retail investors have a clear bias towards mid and smallcaps. They are not concerned about valuation. These relentless flows leave no option to the fund manager but to invest in mid and small caps,” Dr VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services told Moneycontrol.
“Fund managers of Flexi cap funds have the flexibility to switch to large caps where there is much higher valuation comfort. But mid and small cap fund managers do not have this flexibility. This explains this trend,” he said.
Mutual fund managers invested a net sum of Rs 11,244 crore in stock markets in April and Rs 9,358 crore in May, taking the total to Rs 20,602 crore, as per data released by the Securities and Exchange Board of India (Sebi).
The recent rise of mutual fund investing is likely to stay as other asset classes have turned unfavourable such as Gold, real estate, and fixed income.
“The recent drive on black money has curtailed options for investors where they could put their cash to use in real estate, gold and FDs,” Dhiraj Relli, MD & CEO, HDFC Securities told Moneycontrol.
“We see accelerated growth in the fancy for equities, as returns are tax-free if held for more than a year. Besides, rising income levels would mean that more money comes into the system than ever before,” he said.
Equity mutual funds added over 6.5 lakh folios in May, taking the total number of folios to an all-time-high of 3.35 crore. The trend of increased attention and interest in mutual funds is here to stay. In fact, it will slowly increase.
According to AMFI, Mutual Fund Systematic Investment (SIP) inflows grew by 7% or Rs315 crore in May on a monthly basis, receiving Rs 4,585 crore in May, against an inflow of Rs 4,270 crore in April. It was Rs 2000 cr in 2015.
Relli further added that the number of SIP accounts has surged by 40 percent this year. Besides, in a regime of low interest rates, the investor’s fancy for fixed return debt instruments will decline.