Mutual funds pulled out a massive Rs 14,300 crore from equities in October, making it the fifth consecutive month of withdrawal, as fund managers sold stocks to meet redemption requirements. During January-May 2020, mutual funds (MFs) made a net investment of more than Rs 40,000 crore in stock markets, data available with the Securities and Exchange Board of India (SEBI) showed.
Pranjal Kamra, CEO of Finology said, one of the primary reasons for the withdrawal was that continuous outflow was being observed in equity mutual funds through redemption by investors amid concern over the US election and slowdown in the domestic economy. Moreover, during the September quarter, equity-oriented mutual funds witnessed an outflow of over Rs 7,200 crore and also there was a drop in inflow from the systematic investment plan (SIP) folios.
Another reason for withdrawal could be profit booking in some of the spaces, and the need to increase their cash holding as the outlook remains uncertain, Kamra said. "The numbers (outflow) we are seeing are mostly the result of fund managers selling to meet redemption requirements," said Harsh Jain, co-founder and COO at Groww.
Jain further added that "this is a common behaviour seen in times of uncertainty. When the markets recover after a crash, investors tend to withdraw when they reach break-even." According to the data, MFs pulled out Rs 14,344 crore from equities in the month of October. This has taken the total outflow to Rs 37,498 crore from equities since June.
Individually, MFs withdrew Rs 4,134 crore in September, Rs 9,213 crore in August, Rs 9,195 crore in July and Rs 612 crore in June. However, they had put in a net sum of over 40,000 crore in the first five months of the year (January-May). Of this, Rs 30,285 crore was invested in March.
Nilesh Shetty, fund manager at Quantum AMC, said withdrawal could be due to mutual fund investors who had seen significant losses in their net asset value (NAV) after the market crash in March and are exiting their investments after the recovery in NAV. Going ahead, Finology's Kamra said with less than two months remaining for 2020 to get over, a rebound is least expected.
"However, with the end of the financial year nearing and turning sentiment of the market towards positive, growth in inflow may be on the cards," he added. Prateek Mehta, co-founder and chief business officer of Scripbox, said there is some stability that has been seen in Indian markets lately. However, the entire impact of COVID-19 has not been completely understood and hence, cannot be priced in.