Inflows into equity mutual funds (MFs) decoupled from the past performance of the stock market for the first time in a decade, as investors continued to pour money into the market despite poor returns, a report by Business Standard stated.
Quoting a brokerage report, the market daily stated that inflows into equity funds have remained strong since November 2022 despite a poor one-year return scorecard for most schemes.
It also pointed out this trend is contradictory to earlier ones – in every previous phase of equity market underperformance, inflows had nosedived after a period of six months. Similarly, the MF flows are generally buoyant after every rally, the report said.
According to BS, the deviation from the past trend this time was underpinned by steady flows through systematic investment plans (SIPs), elevated lump sum investments and lower redemptions.
“Data for the past decade shows a reasonable correlation between one-year benchmark returns and MF net equity flows six months later. However, we have seen a contrast emerge in the past few months — market returns have stagnated to low-single digits. And, net inflows have rebounded sharply from near zero in November 2022 to a 12-month high of ₹20,000 crore in March 2023,” said Kotak Institutional Equities (KIE), as per the report.
While it is difficult to predict if this disconnect is temporary or permanent, the decoupling of SIP flows from the market condition (as seen since the start of 2021), is likely to weaken the link between equity market performance and MF inflows, highlighted the report.
Apart from the strong and steady SIP flows, a general change in investor behaviour is bringing about a shift in equity investing trend, it added.
In another report, dated November 2022, ICICI Direct said that investors were trying to time the market in the past few years. They were open to investing more during market turmoil.
According to the study, there have been at least three instances in the last four-five years when investors increased their equity investments in MFs when the market was going down.
Similarly, they were seen redeeming their holdings after a market rally.
