Equity-oriented funds witnessed a slowdown in net inflows in September due to increased redemptions from smallcap and midcap schemes, according to data from the Association of Mutual Funds in India (Amfi).
Equity funds witnessed net inflows of Rs 14,091.2 crore in September 2023, lower than Rs 20,456 crore in August 2023.
Sixteen NFOs were launched in September, with 5 hybrid categories garnering Rs.5,233 crore, followed by 6 equity-oriented schemes with Rs.2503 crore and Rs59 crore in other schemes.
“The spike in the flows of this category could also be attributed to the fact that there were four new fund launches in this category, which cumulatively garnered Rs 1,629 crore during the month of September,” said Melvyn Santarita, Analyst – analyst-manager research, Morningstar Investment Adviser India.
In August 2023 too, this category saw the highest flows of Rs 4,805.81 crores aided by 5 new fund launches.
The quantum of net flows in both the small-cap and the midcap as a category saw a dip compared to the previous months, but they were still among the highest recipient of net inflows in September with the midcap category receiving Rs 2000.8 crore and the small-cap category receiving Rs 2,678.4 crore.
Investors redeemed Rs 4,200 crore from smallcap schemes in September, the highest since January 2020.
“The dip in the net flows of these categories could be attributed to some bit of profit booking by investors coupled with concerns regarding inflated valuations in some of these segments,” said Santaria.
The multi-cap category also witnessed a spike in its flows buoyed by the launch of a new fund (WhiteOak Capital Multi Cap Fund) in September. The category saw net inflows of Rs 2,234.5 crore, of which WhiteOak Capital Multicap Fund garnered Rs 411 crore.
Hybrid funds have received a net inflow of Rs.18,650.45, the highest ever in over two years mainly due to the continuance of rising interest in arbitrage funds
Hybrid funds experienced an uptick in net inflows on a month-on-month basis. This trend reflects the prevalent risk-off sentiment in the market, with investors seeking to diversify their investments while maintaining a focus on capital protection,” said Chaturvedi.
The only categories which saw net outflows were ELSS (Rs 141.15 crore) and Largecap (Rs 110.6 crore). This was the fifth consecutive month where the large cap witnessed net outflows. Active large cap funds have been finding it increasingly difficult to beat passive funds and therefore some investors could be choosing to exit active funds in this category and opting for the passive route.
Both the mid-cap and the small-cap indexes have seen a sharp rally over the last six months and one year.
“The valuation of the market is not cheap and investors are waiting on the sidelines to use any downside to increase allocation. Investors are now going slow on small cap at the current valuation, and the flow will increase if any correction happens the market. Investors should remain cautious in the short term as the market may remain volatile in the short term due to Israel-Gaja conflicts, US data and election. One should rebalance their portfolio as the equity run-up must have changed their original plan of asset allocation,” said Mukesh Kochar, National Head of Wealth at AUM Capital.
Passive funds as a category (Index and ETFs) continue to see healthy net inflows every month.
The quantum of net flows in Gold ETFs fell to Rs 175.29 crore in September from Rs 1,028.06 crore it witnessed in August. Interestingly, the net flows witnessed by Gold ETFs in August 2023 were the highest in over 17 months.
“With the continued hike in interest rates in the US, inflation still higher than expectations, and growth rate slowing down, the appeal of gold as a safe haven and hedge against inflation is expected to continue. Moreover, Gold prices in recent times have come-off from its all-time high levels, thereby providing some buying opportunity, particularly after a sharp rally it witnessed since March this year,” said Santarita.
Fixed Income:
“The huge net outflow in September could be attributed to the advance tax requirement that corporates need to meet with it being the quarter end. Expectedly, liquid funds witnessed the highest net outflows during the month,” said Morningstar in a note.
Except for Long Duration and Gilt Fund Categories, all the other categories witnessed net outflows. These two categories have been finding favour with investors for some time in anticipation of a change in the interest rate cycle.
Moreover, some correction in the equity markets towards the later part of September could also have prompted investors to shift towards equity with the expectation of better returns.
Corporate bond funds as a category witnessed net outflows of Rs 2,459.5) crore for the first time in over eight months.