After withdrawing capital from equities in April, mutual funds put in over Rs 2,400 crore in stocks last month, primarily due to robust GDP growth, controlled inflation levels, and balanced liquidity in the economy.
Going ahead, stronger inflows from the mutual fund space in equities are expected on positive macro numbers and the current fair value of Nifty, Feroze Azeez, Deputy CEO of Anand Rathi Wealth, said.
"Stable GDP growth, low inflation, investor-friendly policies, and global market sentiments towards emerging economies play a significant role in attracting investments from both mutual funds and foreign portfolio investors (FPIs)," Akhil Chaturvedi, Chief Business Officer at Motilal Oswal AMC, said.
According to the data available from the Securities and Exchange Board of India (Sebi), mutual funds infused a net sum of Rs 2,446 crore in equities as compared to a net withdrawal of Rs 4,533 crore in April.
However, there is a disparity in May's investments between mutual funds and Foreign Portfolio Investors (FPIs), with mutual funds showing lower investments than the substantial Rs 43,838 crore invested by FPIs. Even in April, foreign investors infused Rs 11,631 crore.
Market experts believe this temporary shift in investment pattern is a significant positive for the Indian market.
"This trend reflects the interplay between FPI and domestic institutional investors (DII) flows, where the two investor categories act as counterbalances to each other; during periods when FPIs sell their investments, DIIs, including mutual funds, step in to purchase securities, and vice versa," Chaturvedi said.
Moreover, this pattern provides liquidity in the market and enables strategic exits and profit-booking opportunities.
Despite the fluctuating investments from FPIs and DIIs, the overall trend has been positive, with 11 consecutive months of net positive outcomes for the market, he added.
Nitin Rao, Head of Products and Proposition at Epsilon Money Mart, attributed the latest investment by mutual funds to improving global cues.
In the longer term, India's growth prospect is higher amidst concerns of slowing growth in major developed economies.
The mutual fund industry has gained momentum due to factors such as strong GDP growth, controlled inflation levels, and balanced liquidity in the economy. The fundamentals of the economy and corporations are strong, Anand Rathi Wealth's Azeez said.
Earnings growth is positive for most sectors, except for healthcare, metal, and oil and gas. However, the top three sectors preferred by mutual funds are banking and financials, auto, and capital goods.
Overall, mutual funds invested over Rs 1.8 lakh crore in equities in the financial year 2022-23 largely due to strong interest from retail investors and the correction in the market that led to a reasonable valuation.
Besides, a similar amount was invested in FY22 too. Before that, they had pulled out Rs 1.2 lakh crore from equities in 2020-21.
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