Although FII flows have reversed, retail investor confidence remains low thanks to macro concerns

• Net inflow into equity mutual funds have nearly halved to ₹8,898 crore in July as compared to ₹15,497 crore in the previous month.
• Volatility in global crude prices, persisting geopolitical issues, soaring inflation and foreign selloff continue to impact investor sentiment, say analysts.
• Meanwhile monthly SIP contribution has slowed down from the past two months because of the extreme market conditions.

Retail investors, who have been propping up equity markets, are now also turning cautious due to the ongoing global economic issues and risk off sentiment.

Net inflow into equity mutual funds have nearly halved to ₹8,898 crore in July as compared to ₹15,497 crore in the previous month. Although this is the 17th straight month, equity mutual funds have witnessed inflows, the trend is seen to be slowing down rapidly.

This is despite massive gains made by the benchmark indices in the last one month. Sensex and Nifty50 surged over 8% each during the period but investors are not confident enough of the rally as economic conditions tell otherwise.

“Inflows into equity mutual funds fell for the second straight month as volatility in global crude prices, persisting geopolitical issues, soaring inflation and foreign selloff continue to impact investor sentiment. Net investments into equity and equity-linked schemes slumped 42.5% over the previous month to ₹8,898 crore in July,” said Deepak Jasani, head of retail research at HDFC Securities.

Investors have, however, grabbed the opportunity to make some profits from the recent rally in the market. For retail investors to restate confidence in the Indian markets, foreign capital inflows need to be more consistent, say analysts.

“July seems to be month where investors has taken some profits off as markets went up, the net sales in equity has plummeted to ₹8,898 cr versus ₹15,497 crore, momentum was coming down all through last few months as the markets were correcting but July was a steep fall and excluding SIP numbers, we might have witnessed actual net negative sales in July.

Even the hybrid category has slowed down with both dip on gross sales and higher redemptions. We are seeing markets recovering and FIIs returning. Although it’s early days to say that this trend will be consistent, but, if it is, then I hope for the retail investor confidence to return once again,” said Akhil Chaturvedi, chief business officer at Motilal Oswal AMC.
Meanwhile, debt funds saw net inflows after two months of massive outflow because of the aggressive monetary policy. July saw net inflows of ₹4,930 crore compared to outflows of ₹92,247 crore in the previous month.

“Especially in fixed income, activity in medium and long-duration funds has been extremely low. As investors are conservative enough to take a hit from monetary policy tightening, it’s based on the RBI’s commitment to withdraw its accommodative stance and counter inflation, which has resulted in the highest inflows to Ultra-Short Funds in the debt category,” said Akshat Garg, manager-research, choice wealth, a SEBI/AMFI-registered company.

In addition, monthly SIP contribution has also slowed down from the past two months because of the extreme market conditions. However, the SIP inflows have remained around ₹12,000 crore for a couple of months.

“The amount contributed through systematic investment plans, the favoured method for individual investors to invest in mutual funds, decreased slightly from the previous month to ₹12,275 crore to ₹12,139 crore in July. As markets rose in July, it appears that investors sold some of their gains,” Mohit Nigam, head - PMS at Hem Securities.

N S Venkatesh, chief executive of AMFI is hopeful that the flows will come around as economic recovery would pick up in the next few quarters.


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