Mutual fund investments in equity markets jumped 58 per cent in May to over ₹48,247 crore against ₹30,594 crore logged in April, on the back of healthy inflows as investors used the fall in the markets to pump in more money, according to data sourced from SEBI.
Stock indices fell around two per cent last month on the back of delay in a truce between warring US and Iran and the damages inflicted to the oil refineries in and around West Asia.
Moreover, global financial service provider Morgan Stanley has cut the India’s weightage in its emerging market index. In its quarterly rebalancing, effective Friday, MSCI has reduced India’s weight in the Global Standard index to 12.3 per cent from 12.4 per cent. The move has triggered a huge sell-of of FPIs in Indian markets.
Capital flows
The indices provided by New York-based MSCI, formerly Morgan Stanley Capital International, are keenly eyed by investors across the world because they dictate the flow of capital, especially passive funds that closely track the weights assigned to regions, countries and companies.
Shweta Rajani, Head – Mutual fund, Anand Rathi Wealth, said domestic flows are in a very stable zone as investors are increasingly guided by discipline and financial planning rather than market emotion.
Though most sectors reported a double-digit earnings growth in Q4, she said margins remained under pressure due to higher commodity and input costs. The pressures are likely to persist into the June quarter as well, keeping margins under watch, she added.
While commodity inflation and global uncertainties remain risks, the combination of strong economic growth, policy support and an improving earnings cycle provides a positive foundation for both markets and mutual fund investors, she said.
Ponmudi R, Founder & CEO, Enrich Money, said despite concerns around corporate earnings, investors are investing with a longer-term perspective rather than reacting to quarterly earnings volatility.
A sharp and sustained rise could impact household savings and disposable income, which may slow incremental investments at the margin. However, the structural story for mutual fund inflows in India remains strong, he added.
SIP resilience
However, SIPs are designed to navigate such phases by averaging costs across market cycles and temporary volatility should not be viewed as a negative for disciplined long-term investors, he said.
Hariprasad K, Research Analyst and Founder, Livelong Wealth, said domestic retail participation, led by SIPs, has become a powerful and consistent source of capital that continues to support equities even during periods of volatility.
Over the past few years, abundant liquidity has pushed valuations higher across several pockets of the market, while earnings growth has begun to moderate amid inflationary pressures, higher input costs and softer demand conditions, he said.
“Rather than sharp market declines, the bigger risk could be prolonged consolidation where earnings gradually catch up to elevated valuations. In such an environment, future returns are likely to be driven more by profit growth than liquidity expansion,” he said.