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Investors in Indian domestic equity mutual funds have been acting counter-cyclically in
recent months, with net inflows picking up in down months. This trend should provide
downside support to the Indian equity market, in our view.
Domestic equity mutual funds had net inflows of Rs20bn in August 2011
August’s Rs20bn net inflows contrasts with net outflows of Rs30bn a year earlier and net
outflows of Rs9bn in July 2011. The net inflows reflected gross sales of Rs58bn (up 14% yoy
and 52% mom), partially offset by redemptions of Rs38bn (down 53% yoy and 18% mom).
The Nifty Index averaged 5,077 in August, down 9.3% mom.
Mutual fund investors are stepping up buying in down markets …
Equity mutual fund net inflows also picked up back in February, to Rs28bn when the Nifty
Index averaged 5,401, down 6.6% mom. By comparison, net outflows peaked at Rs73bn in
September 2010, when the Nifty index averaged 5,811, up 6.5% mom.
… and could provide downside support to the equity market
August’s net inflows into equity mutual funds are encouraging, in our view, especially given the
high deposit rates on offer (12M certificate-of-deposit rates averaged 9.6% in August, while 3M
rates averaged 9.1%, see chart 3 on page 2). This suggests that mutual fund investors expect
higher returns from equities versus deposits. Separately, the recent introduction of a transaction
charge (albeit small at Rs100) could also generate higher sales by mutual fund distributors.
Foreign institutional investor (FII) holdings also seem to be longer term in nature now
Though FII ownership of Indian equities is close to its peak levels, we think it is more long term in
nature now. Specifically, exposure via participatory notes (P-Notes) peaked at 38% of total FII
assets under custody in October 2007 and was only 11% at the end of August 2011 (see chart 10
on page 5). This suggests that shorter-term investors are now a much smaller proportion of the
FII investor base in India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Investors in Indian domestic equity mutual funds have been acting counter-cyclically in
recent months, with net inflows picking up in down months. This trend should provide
downside support to the Indian equity market, in our view.
Domestic equity mutual funds had net inflows of Rs20bn in August 2011
August’s Rs20bn net inflows contrasts with net outflows of Rs30bn a year earlier and net
outflows of Rs9bn in July 2011. The net inflows reflected gross sales of Rs58bn (up 14% yoy
and 52% mom), partially offset by redemptions of Rs38bn (down 53% yoy and 18% mom).
The Nifty Index averaged 5,077 in August, down 9.3% mom.
Mutual fund investors are stepping up buying in down markets …
Equity mutual fund net inflows also picked up back in February, to Rs28bn when the Nifty
Index averaged 5,401, down 6.6% mom. By comparison, net outflows peaked at Rs73bn in
September 2010, when the Nifty index averaged 5,811, up 6.5% mom.
… and could provide downside support to the equity market
August’s net inflows into equity mutual funds are encouraging, in our view, especially given the
high deposit rates on offer (12M certificate-of-deposit rates averaged 9.6% in August, while 3M
rates averaged 9.1%, see chart 3 on page 2). This suggests that mutual fund investors expect
higher returns from equities versus deposits. Separately, the recent introduction of a transaction
charge (albeit small at Rs100) could also generate higher sales by mutual fund distributors.
Foreign institutional investor (FII) holdings also seem to be longer term in nature now
Though FII ownership of Indian equities is close to its peak levels, we think it is more long term in
nature now. Specifically, exposure via participatory notes (P-Notes) peaked at 38% of total FII
assets under custody in October 2007 and was only 11% at the end of August 2011 (see chart 10
on page 5). This suggests that shorter-term investors are now a much smaller proportion of the
FII investor base in India.
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