Mutual funds invest Rs 1.82 lakh crore in equities in FY23 on strong push from retail investors

Indian real estate market

In NEW DELHI: Due in large part to a significant amount of interest from ordinary investors and the market correction that resulted in acceptable pricing, mutual funds continued to be optimistic on Indian stocks in 2022–2023 and invested Rs. 1.82 lakh crore.
This comes after mutual funds invested a similar sum of Rs 1.81 lakh crore in the stock market during the previous financial year 2021–2022. (FY22). Data with the Securities and Exchange Board of India show that prior to then, they had sold Rs 1.2 lakh crore worth of stocks (Sebi).
In the next quarters, the equities outlook for the current fiscal year (FY24) will begin to improve as US inflation starts to decline and the US Federal Reserve shifts its policy position from hawkish to dovish. Bajaj Capital’s chairman and managing director, Rajiv Bajaj, stated.
India’s long-term economic prospects are better amid worries about the big industrialised economies’ decreasing growth.

“In the near future, profit growth will be fueled by the government’s supportive policies, an emphasis on investment-led growth (Capex Push), and stronger bank balance sheets. The China+1 initiative and the PLI (Production-linked Incentive) policy are likely to strengthen India’s manufacturing industry and reduce our trade deficit. This is the reason why most investors are optimistic about India’s growth story and believe that Indian equities are the best way to play it “added he.
Mutual funds made net investments totaling Rs. 1.82 lakh crore in the recently ended financial year, according to Sebi statistics.

According to Shruti Jain, CSO at Arihant Capital, a number of factors, including valuations reaching an acceptable level and favourable sentiment among institutional investors, contributed to mutual funds’ investment in equities.

Equity mutual funds have won over Indian individual investors, who now favour them as their go-to investing choice during choppy economic times. SIPs (Systematic Investment Plans) are still a common way for regular investors to invest.

“The equity market’s fall has also been beneficial. Due to this, equity funds have seen an increase in inflows, and as a result, mutual funds are purchasing more stocks “added Jain.

Also, equities is one of the strongest investing strategies for producing returns that outperform inflation. According to Feroze Azeez, Deputy CEO at Anand Rathi Wealth, the performance of the NSE’s benchmark Nifty over the past 22 years shows that equities is not as hazardous as it is believed to be by investors while it offers an inflation-beating return.

History demonstrates that just four times in the previous 22 years did Nifty offer a negative average return for the corresponding calendar years, and the CAGR (Compound Annual Growth Rate) return over that time period was 12.86%.

The largest sectoral allocation in mutual fund portfolios continues to be in the financial services industry, followed by capital goods, IT, capital goods, auto, and healthcare.
Domestic Institutional Investors (DIIs), such as mutual funds and insurance corporations, have purchased the large amount of shares that Foreign Portfolio Investors (FPIs) had been selling on the Indian market. This reflects the growing maturity and influence of domestic investors.

FPIs sold Indian stocks of Rs 37,631 crore in the previous fiscal year and Rs 1.4 lakh crore in FY22.

Mutual funds, on the other hand, withdrew more than Rs 40,600 crore from the debt markets during the time period under consideration. At the end of every fiscal year, there is typically a significant outflow of liquid funds. In addition to liquid funds, funds with an ultra- or short tenure also saw withdrawals.

According to Jain of Arihant Capital, “Debt as an asset class is becoming more appealing globally, which may also be the reason why there were some outflows from India.”

According to Bajaj, the Reserve Bank of India’s (RBI) tighter monetary policy stance maintained throughout the year could be principally responsible for the retreat from debt in FY23. To reduce inflation, the apex bank raised the repo rate by 250 basis points. The yields throughout the curve have shifted upward as a result, which has led to muted gains or mark-to-market losses in the investor’s portfolio.

Furthermore, he claimed that if the debt fund taxation changes revealed at the end of March hadn’t resulted in substantial inflows in the final eight days of the month, the withdrawal from debt funds would have been higher.

The long-term tax advantages that investors previously benefited from will be removed under the new regulations for debt mutual funds when investments are treated as short-term capital gains.

Due to the elimination of long-term capital gains taxation, flows in debt mutual funds are predicted to reduce under the new system. This might result in more money flowing into hybrid equity-oriented funds. Equity Saving Funds, Dynamic Asset Allocation Funds, and Multi Asset Allocation Funds, which benefit from equity taxes, could be some of the main benefactors in the hybrid area, according to Bajaj.