Sunday, January 31, 2016

Foreigners rush out but locals fill in

India's domestic investors are once again offsetting the massive selling by overseas investors. Amid a market turmoil, which saw benchmark indices losing nearly eight per cent of value within 14 trading sessions, foreign investors sold shares worth Rs 9,600 crore ($1.4 billion). However, domestic institutions were quick to grab the opportunity and pumped in about Rs 9,200 crore ($1.3 billion) in year-to-date period.

This, clearly, is an indication that local investors' faith on India's growth story remains intact despite continuous off-loading of shares by their foreign counterparts. And, as long as their hands are full with investors' robust inflows, they will keep on buying in the market, which is getting cheaper day by day.

India's mutual fund (MF) sector, on the back of robust inflows from retail investors, was clearly an outlier last year. It invested a whopping Rs 80,000 crore in equities throughout 2015. In 2016, fund managers have already pumped in Rs 3,200 crore in a falling market and maintain the view it is a big opportunity for long-term investments.

What is noteworthy is that mutual funds' domestic peers - insurance companies - too have joined the bandwagon of buying cheap shares. The total buying by domestic institutions (both MF and insurance) has surpassed the Rs 9,000 crore-mark, which suggests that buying is more by institutions other than mutual fund players.

“It’s a year of buying,” says S Naren, chief investment officer (CIO) of ICICI Prudential AMC. “From our past experience, we have seen such periods are good buying opportunities for long-term equity investors when foreign investors sell on the back of global factors.”

He added that investors who bought during 1998, 2002 and 2008 crises had actually made money. Fund managers admit the year could be highly volatile for the stock markets with a downward bias, but that should not deter long-term investors. Outflow of foreign money appears to be not a deterrent for fund managers.

Neelesh Surana, head of equity at Mirae Asset Mutual Fund, says, “Foreign institutional investment flows have been negative across emerging markets and India is no exception. However, India growth traits are much superior."

According to Naren, insurance companies are yet underweight equities and they might change their stance. “Large cap stocks are preferable over the mid-cap now,” he adds.

According to the latest domestic institutional investment data, insurance companies - which normally go for bulk buying when markets are low - appear to be back in the game. Typically, they tend to infuse more funds in equities during the January-March quarter of a year.

On the other hand, mutual fund players are also confident that with rising awareness among investors and goal-based investment, a massive exodus of retail investors from the market may not be a likely event. They expect fresh incremental inflows to continue.

Milind Barve, managing director and chief executive of HDFC Mutual Fund, says, “Year 2015 was unprecedented in terms of any calendar year. And there is no reason why inflows will not come to equity mutual fund schemes going forward.”

The other cushion to the fund houses to ensure the availability of funds to invest in stocks is the rising systematic investment plan (SIP) book. It is now almost to the tune of Rs 3,000 crore a month. A few years ago, investments coming through this route were only Rs 1,000 crore a month. The fund inflows through SIP is generally quite sticky in nature and does not go away quickly. In case there is no incremental inflows, the sector will be assured of at least the flows through SIPs.

N K Prasad, CEO and president of Computer Age Management Services (CAMS), one of the transfer agencies for mutual funds, says: “SIP book has been a significant growth engine for the industry. CAMS-serviced funds’ live SIP book has seen a staggering 40 per cent growth in  the past one year from 38.6 lakh (3.86 million) to 54.2 lakh (5.42 million) SIP accounts. The average ticket size has also improved to a little over Rs 3,000 from about Rs 2,800 a year before. The cease rate that usually increases with market volatility are less now, pointing to investor confidence to stay invested.”

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