As the industry continues to evolve, the new trends and insight can help investors make the right investment decisions by delving into the developments shaping the industry such as AUM trends, investor sentiments, sectoral preferences, and the growing influence of retail investors.
AUM trends and market sentiments
The trajectory of the industry in 2023 initially displayed a declining trend in AUM. However, a remarkable recovery ensued, reaching a crescendo after hitting a low point in March. This resurgence was driven by an optimistic economic outlook, buoyed by robust domestic macroeconomic indicators, including impressive GDP and PMI figures. Despite global uncertainties, Indian equities demonstrated resilience, propelling the industry forward.
Sectoral preferences and market resilience
The mutual fund industry’s performance was underscored by strong inflows across various sectors, including Smallcap, midcap, multicap, flexicap, large and midcap, and sectoral/thematic funds equity categories. Notably, there was a shift in the proportionate share of schemes, with debt-oriented ones decreasing and equity-oriented ones witnessing an increase. The Exchange Traded Fund (ETF) market share grew from 16.1% in 2022 to 16.8% in November 2023, indicating a growing interest in this investment avenue.
SIP contribution and retail participation
The monthly Systematic Investment Plan (SIP) contributions reached an unprecedented high of ₹17,073 crore in October 2023, showcasing consistent growth. This surge is emblematic of increased retail participation, with the number of SIP accounts surpassing ₹7.44 crore in November 2023. The stability brought by SIPs has become a linchpin in shaping industry flows, providing investors with a disciplined and systematic approach.
Regional insights and fund house contribution
The geographical distribution of the industry’s success was evident, with Mumbai, Delhi, and Bengaluru emerging as the top three cities contributing about 50% to the Indian Mutual Fund Industry. Furthermore, the top 10 fund houses, owning more than 79% of the industry’s assets, played a pivotal role. The standout growth of Tata Mutual Fund, witnessing a 40% increase in AUM, and the remarkable 610% growth post-merger of HSBC Mutual Fund with L&T Mutual Fund underscored the dynamic landscape.
Sectoral allocations and top stock picks
The financial sector retained its position at the forefront, while the technology sector adjusted its exposure in response to recessionary headwinds in the US and Europe. HDFC Bank, ICICI Bank, and Reliance Industries emerged as the top three favourite stocks of mutual funds, reflecting consistent performance and robust fundamentals.
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New Fund Offerings (NFOs) and ETF market dynamics
The ETF market’s evolution was apparent, with its share increasing from 16.1% in October 2022 to 16.6% in October 2023. Sixteen new fund offerings in October 2023 reflected a shifting preference among investors for large-cap, mid-cap, and small-cap stocks, further diversifying investment strategies.
Market performance and global influences
The Nifty and Sensex ETFs strategically invested in large-cap stocks, enhancing liquidity and ease of liquidation. Despite a brief 2.8% drop in overall market capitalization in October, both Nifty and Sensex reached all-time highs in November. Positive sentiments were fueled by the return of Foreign Institutional Investors (FIIs), a rally in Adani Stocks, and better-than-expected corporate results.
Asset allocation strategies
In response to a higher interest rate environment, debt funds reallocated their assets towards government securities, prioritising stable returns with lower risk. Prudent credit rating considerations post-COVID prompted changes in allocation, revealing a positive correlation between risk and returns across various mutual fund categories.
Retail vs. non-retail investor behaviour
A distinctive trend emerged in investor behaviour, with retail investors showcasing a longer holding period. In contrast, non-retail investors favoured non-equity funds with shorter investment horizons. This shift in retail investor preferences signals a paradigmatic change, playing a pivotal role in shaping the industry’s trajectory.
Market outlook and future prospects
Looking ahead, the Indian mutual fund industry stands poised for robust growth. Fueled by the financialization of savings, increasing financial awareness, and the growing preference for financial assets among investors, the industry remains resilient. Despite challenges posed by global economic headwinds, the adaptability and resilience showcased over the past year position the industry for continued success.
The industry’s journey over the past year reflects not only its resilience but also its adaptability to changing market dynamics. As investors navigate through the complexities of the financial landscape, these insights can serve as a compass, helping them make informed decisions and harness the industry’s potential for sustained growth.
Rishabh Goel, Founder and Managing Director at Tailwind Financial Services
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Published: 27 Dec 2023, 09:02 AM IST