For nearly six months now, Indian mutual funds have been selling more shares than they have been buying, as they grapple with weak inflows into their schemes.
This is in stark contrast to peers like foreign institutional investors (FIIs) and local insurance firms, which have been net buyers during this period. Mutual fund watchers say unless the distribution issues are sorted out and retail investor confidence improves, inflows are unlikely to improve anytime soon.
Cash levels in most equity schemes — diversified as well as sectoral —have come down sharply to 3-4%. This leaves fund managers with little money to deploy in case the market corrects sharply.
According to SEBI data, mutual funds have net-sold around Rs 12,000 crore worth of shares between last September and now. In 2010 alone, local fund houses have dumped Rs 2,107 crore worth of shares at the net level.
Investments into mutual fund schemes have been impacted by market regulator Sebi’s decision in August last year, to abolish entry load. This has led to distributors pushing other products to investors, on which they stand to earn a higher commission.
However, fund managers are of the view that regulatory changes only served to aggravate an already underlying bearish sentiment.
"Sharp swings in the stock market over the past six months have also made investors hesitant about investing at higher levels," says A Balasubramaniam, CEO, Birla Sunlife Mutual Fund.
"Also, many investors have been liquidating a part of their mutual fund holdings to subscribe to public issues. However, we are seeing good inflows whenever there is a sharp correction (in the market)," he told ET.
Nandkumar Surti, CIO, JP Morgan AMC, is of the view that participation in equity schemes is at an all-time low and this is primarily because investor confidence is still not back to the same levels as it was in early 2008.
"The global economy went through its worst phase in 2008, thereby raising a lot of questions on sustainability of the recovery. As such when the market rebounded last year, you saw investors looking to exit at every level or even preferring a marginal exposure to equity," he said.
Fund managers believe that while the pick-up in growth this year is a positive signal, it will be some time before pure equity schemes are back in favour. “For the next 3-6 months, investors will be looking at monthly income plan (MIPs), balanced funds, or structured products. One could see investor confidence return by FY11 or the latter half of 2010," feels Mr Surti.
Even as mutual funds saw their market share erode marginally on continued outflows, insurance companies have been steadily upping their equity exposure.
"Domestic funds have yet to recover from regulatory changes in August, and remained sellers in the past quarter. At $62 billion, the insurance portfolio is now 28% larger than the mutual fund portfolio (both across equities). The January-March quarter is usually the strongest for insurance companies. And we would expect their market share to rise further, going forward," say equity strategists Aditya Narain and Tirthankar Patnaik of Citigroup Global Markets in their India equity strategy report.
"We have seen some amount of pick-up in interest in February and if there are no unpleasant global triggers, things can only improve," said a fund manager optimistically.
Source: http://economictimes.indiatimes.com/MFs-forced-to-sell-shares-as-inflows-dry-up/articleshow/5655825.cms
This is in stark contrast to peers like foreign institutional investors (FIIs) and local insurance firms, which have been net buyers during this period. Mutual fund watchers say unless the distribution issues are sorted out and retail investor confidence improves, inflows are unlikely to improve anytime soon.
Cash levels in most equity schemes — diversified as well as sectoral —have come down sharply to 3-4%. This leaves fund managers with little money to deploy in case the market corrects sharply.
According to SEBI data, mutual funds have net-sold around Rs 12,000 crore worth of shares between last September and now. In 2010 alone, local fund houses have dumped Rs 2,107 crore worth of shares at the net level.
Investments into mutual fund schemes have been impacted by market regulator Sebi’s decision in August last year, to abolish entry load. This has led to distributors pushing other products to investors, on which they stand to earn a higher commission.
However, fund managers are of the view that regulatory changes only served to aggravate an already underlying bearish sentiment.
"Sharp swings in the stock market over the past six months have also made investors hesitant about investing at higher levels," says A Balasubramaniam, CEO, Birla Sunlife Mutual Fund.
"Also, many investors have been liquidating a part of their mutual fund holdings to subscribe to public issues. However, we are seeing good inflows whenever there is a sharp correction (in the market)," he told ET.
Nandkumar Surti, CIO, JP Morgan AMC, is of the view that participation in equity schemes is at an all-time low and this is primarily because investor confidence is still not back to the same levels as it was in early 2008.
"The global economy went through its worst phase in 2008, thereby raising a lot of questions on sustainability of the recovery. As such when the market rebounded last year, you saw investors looking to exit at every level or even preferring a marginal exposure to equity," he said.
Fund managers believe that while the pick-up in growth this year is a positive signal, it will be some time before pure equity schemes are back in favour. “For the next 3-6 months, investors will be looking at monthly income plan (MIPs), balanced funds, or structured products. One could see investor confidence return by FY11 or the latter half of 2010," feels Mr Surti.
Even as mutual funds saw their market share erode marginally on continued outflows, insurance companies have been steadily upping their equity exposure.
"Domestic funds have yet to recover from regulatory changes in August, and remained sellers in the past quarter. At $62 billion, the insurance portfolio is now 28% larger than the mutual fund portfolio (both across equities). The January-March quarter is usually the strongest for insurance companies. And we would expect their market share to rise further, going forward," say equity strategists Aditya Narain and Tirthankar Patnaik of Citigroup Global Markets in their India equity strategy report.
"We have seen some amount of pick-up in interest in February and if there are no unpleasant global triggers, things can only improve," said a fund manager optimistically.
Source: http://economictimes.indiatimes.com/MFs-forced-to-sell-shares-as-inflows-dry-up/articleshow/5655825.cms
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