The month of February was a tough one for the Indian market owing to geopolitical concerns, rising crude oil prices and sustained foreign capital outflow but the market volatility failed to deter domestic investors as data from the Association of Mutual Funds of India (AMFI) showed domestic investors pumped in ₹19,705.27 crore in Indian equity funds in February from ₹14,887.77 crore in the previous month January.
Domestic equity benchmark the Sensex fell about 3 percent in February as foreign portfolio investors (FPIs) sold off Indian equities in the said month amid concerns over the Russia-Ukraine war, a sharp rise in crude oil prices, firming inflation and the possibility of imminent rate hikes. Data from NSDL shows that FPIs sold off Indian equities worth ₹35,592 crore in February.
On the contrary, inflows in Indian equity by domestic investors rose more than 32 percent month-on-month. SIP inflows stood at ₹11,438 crore in the month.
What boosted the equity inflow?
The Indian market has been in the red since January on a monthly basis but we have seen the domestic appetite for equities to be on the rise.
Domestic investors have been adding to their equity exposure in the recent market correction as the SIP inflows have been trending upward for the last five consecutive months. Analysts point out that strong domestic equity participation has counter-balanced huge FPI outflows.
Akhil Chaturvedi, Chief Business Officer at Motilal Oswal AMC pointed out that in times of geopolitical risks, markets have corrected sharply, yet the domestic investors have continued to add more allocation to equity.
"This is clearly a change of attitude of investors towards this asset class and a definitely a positive change. At this stage, net domestic positive flows is supporting the massive outflows seen by FPIs on daily basis. A large part of the positive flows is also due to the strong SIP flow of 11 thousand crore monthly which continues to grow strongly,” said Chaturvedi.
The inflow in Indian equity also indicates the fact that mutual fund investors who invest through SIPS are more disciplined and they tend to continue their investment even during times of volatility.
"Equity markets across the world witnessed a bloodbath after the Russia-Ukraine war and crude oil along with all the commodities are witnessed sharp rise due to supply concern. However, we cannot say that the inflow of equities fully transfers to the commodity market. Mutual fund investors are not high-risk taker investors while commodity traders are the high-risk taker investor. Both the market is different and SIP investors are the more disciplined investor and keep continuing their SIP investment," Kshitij Purohit, Lead - commodities and Currency at CapitalVia Global Research.
| Scheme Type | Fund Inflow or Outflow (In ₹Cr) |
| Income/Debt | -8274.29 |
| Equity | 14072 |
| Hybrid | 13467.89 |
| Retirement/Children | 124.58 |
| Others (ETFs, etc) | 12584.16 |
| Source: AMFI |
Can the trend sustain amid uncertainty?
The near-term outlook of the market is hazy as the ongoing Russia-Ukraine war, economic sanctions against Russia and surging crude oil prices may have a global impact that can linger for a longer period.
This uncertainty in the market, however, may be favourable for equity funds as investors may want to depend on fund houses to trade in equity. The looming risk of rate hikes, as inflation is soaring high, may dent the appeal of debt funds and can push investors towards equity-oriented schemes. Thus, inflow to equity schemes may sustain.
"The equity flows should sustain as there has been a flight of investors from direct equity to mutual funds during this recent volatility. The SBI multi cap NFO collecting over a billion is a proxy to understand the domestic sentiment and hence we can conclude that it is significantly better than foreign investors' sentiment. SIP numbers not falling in February is a good indicator that the trend of influx will continue," said Feroze Azeez, Deputy CEO - Anand Rathi Wealth.
