November equity fund inflows at the lowest monthly level in FY19Sentiment – positive or negative – in equity markets do affect investments. At Rs 7,579 crore in November, the net inflows in equity funds were the lowest monthly figure so far in the current financial year. This number used to be above Rs 10,000 crore, but has progressively dropped. Interestingly, the month of November saw a bounce back in stock markets after the severe correction it received in September and October, however, the uncertainties around elections, besides the global macro factors, have kept the market participants on toes. So, is November’s ‘lowest monthly level in FY19’ just statistically significant? Maybe yes or maybe no. Let’s find out.

Inflows and uncertainties

The markets are expected to be extremely volatile till the general elections next year. The exit polls for the assembly elections to five states on Friday revealed Congress is set to make a comeback in Rajasthan, while it has a slight edge over the BJP in Madhya Pradesh and Chattisgarh too. The actual results will be known on December 11 as counting of votes begins, and this could set the trend for the subsequent months.

While market participants and money managers keep saying ‘elections don’t matter in the long-term’, the fact is investors are taking out money from equity funds and perhaps putting them in debt products ahead of volatile times. Next year, we will have the all-important 2019 Lok Sabha elections. Till the results show who is the winner and who is the loser, markets are likely to remain quite volatile till then.

This may be one of the reasons why investors are not buying equity funds as aggressively as earlier. In the focus on ‘net inflows’, the gross sales figures are often overlooked. If you look at the gross sales figures and especially the existing scheme sales, you will find that the November 2018 existing sales number at Rs 13,234 crore was quite low compared to say, October 2018 number of Rs 18,663 crore or the November 2017 number of Rs 34,598 crore. The October 2018 number was similar to the Rs 18,045 crore existing equity scheme sales in September and Rs 19,075 crore number in August.

Equity fund inflows

Month Gross sales (Rs Cr) Redemptions (Rs Cr) Net inflows (Rs Cr) Sensex level (closing) Gain/loss points
Nov-2018 14437 6868 7569 36194.3 1752.25
Oct-2018 21272 9850 11422 34442.05 -1785.09
Sep-2018 21569 11332 10237 36227.14 -2417.93
Aug-2018 22682 14948 7734 38645.07 1038.49
Jul-2018 19495 10983 8512 37606.58 2183.1
Jun-2018 18556 9762 8794 35423.48 101.1
May-2018 22139 11695 10444 35322.38 162.02
Apr-2018 20205 9481 10724 35160.36 2191.68
Mar-2018 39102 36148 2954 32968.68 -1215.36
Feb-2018 32297 17614 14683 34184.04 -1780.98
Jan-2018 44232 30828 13404 35965.02 1908.19
Dec-2017 38263 23342 14921 34056.83 907.48
Source: AMFI

Gross sales dip

Since gross sales of existing schemes are low, even a normal pace of redemptions are reducing the net inflow number by quite a bit. In the month of August, redemptions had hit Rs 14,000-crore figure but gross sales of more than Rs 22,600 crore helped show a better net inflow number. This is just one example. Redemptions are natural but lower sales are something to really worry about. In the gross sales figures, a large chunk is accounted for by Systematic Investment Plans (SIPs). At nearly Rs 8,000 crore, the SIP book alone seems to be contributing a chunk of existing equity schemes. As we have seen during the 2008 and similar years, SIP investors don’t react to short-term volatility but they do take decisive moves if volatility persists.

Besides poll fever and investors’ caution, the wide-ranging and impactful reforms on the mutual fund costs could also be responsible for reducing the interest among MF agents and distributors to sell. We should watch the numbers in the next two to three months carefully. Mutual funds are still ‘sold’ in India, notwithstanding the narrative painted by fund-houses and the ‘go-direct’ mantra among investors. Fund-houses must find out what is the reason behind the consistently lower number of gross equity scheme sales.

Author
Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. He can be contacted on contact@rupeeiq.com