Mutual funds ride demonetization with record Rs 13,000 cr bet on stocks

Moneybags at mutual funds have been going just one way: Dalal Street.

Amid broader share market benchmarks falling nearly 5% this month, the Indian mutual fund industry has pumped over Rs 13,000 crore in stocks, beating all previous monthly investment records.

Even as the din over demonetization continues and cash remains scarce, confident and long-term investors have continued to invest more money in funds, which, in return, have deployed them in beaten-down stocks. MFs have been net buyers for at least 18 days out of 21 sessions.

According to Sebi data, mutual funds have invested a net sum of Rs 13,159 crore this month (up to November 29) in stocks. The data comes with a one-day lag. This monthly amount is bigger than the previous record of Rs 10533 crore in August 2015 and Rs 10326 crore in June 2015.

Nilesh Shah, managing director, Kotak Mahindra AMC, said: "Growing financial awareness has rooted in a mature investing response from retail investors, who now increasingly come to see market dips as lucrative buying opportunities. More importantly, this behaviour underscores the high confidence that the investor segment has with the Indian economy, and its ability to generate growth over the long term. This is also possible due to great on ground work done by distributor fraternity in reaching out to clients."

MF industry didn't always invest such huge sums in stocks every month, even a few years ago. In 2000-2004, monthly investments in stocks by MFs were mostly in a few hundred crores.

The number started reaching Rs 1,000 crore-Rs 5,000 crore till 2009, when the global financial crisis led to a long streak of net outflows from MF industry. This negative trend changed April 2014 onwards and net inflows continued for 21 more months. Between March and October 2016, MFs have been net sellers of stocks for four months and net buyers for the rest four months.

"This is not linked to demonetization, but the market opportunity after stocks came down. The industry has invested the cash position which was with them. The inflows (from investors) continue to be strong, and I clearly believe we will keep seeing more. Typically, whenever there is a correction, a lot of HNI (high net-worth investor) and technically-driven money also comes into the system," Sundeep Sikka, executive director & CEO, Reliance Nippon Life AMC told DNA Money.

The large-cap focused Sensex and Nifty have lost 4.7% this month, but most losses in mid and small cap shares have been to the tune of 10-20%. "…risk-reward for Nifty is more balanced now versus being unattractively skewed prior to recent correction," says Gautam Chhaochharia, head of India research, UBS Securities.

Investors, especially retail category, have pumped money. "Equity as an asset class from longer term perspective remains attractive. In November month MF industry has seen a flow of Rs 8,000 crore-9,000 crore. This shows the confidence of retail customers in equity investments," A Balasubramanian, CEO, Birla Sun Life AMC said in a live webinar addressing investors and distributors.

Earlier whenever foreign institutions sold, markets would crack deeply. However, that effect has been diluted with MF industry getting regular investor inflows. Karthikraj Lakshmanan, senior fund manager – equities, BNP Paribas MF said: "Interestingly, despite Indian markets trading in the positive zone since the beginning of the week, foreign institutional investors continue to be net sellers of Indian equities."