While the equity market is creating a new record high the worry of over valuation appears to be taking its root in investors' mind which seems to be driving investors to pull out their investment substantially. Redemption from equity mutual funds continued unabated for the sixth month continuously with a net redemption of Rs 10,147 crore in the month of December 2020 as per the latest data released by AMFI. This number is relatively lower than November's figure when investors redeemed a net Rs 12,917 crore. Even the hybrid funds are no exception as they too witnessed a net outflow of Rs 5,932 crore in December 2020, which is higher than Rs 5,249 crore witnessed in November last year.
A noticeable development is the lack of growth in new investments while the gross redemption rises. "While the gross purchase (new investments) was lower in December than the previous month; gross redemptions at Rs 36,220.28 crore was significantly higher than Rs 27,113.18 crores in November. This also suggests that investors looked to book profits given the higher market valuations," said Himanshu Srivastava, Associate Director of Manager Research, Morningstar India.
MOST IMPACTED CATEGORIES
This time the redemption has happened across the board in almost all major categories barring a few. "Outflows were witnessed across equity fund categories except for Dividend Yield and Sectoral/Thematic Funds categories, given both these categories saw the launch of new funds, which managed to garner investor interest. These NFOs collected assets worth Rs 6,312 crore," said Srivastava of Morningstar India.
In the equity category the biggest outflow of Rs 3,876 crore was registered in the Large-Cap Fund category which was followed by Multi-Cap Fund at Rs 3,541 crore. Mid-Cap fund witnessed a net outflow of Rs 1,635 crore while for Large & Mid-cap Fund it was Rs 1,289 crores. The Hybrid segment Aggressive and Balanced Hybrid category witnessed the biggest net outflow of Rs 3,913 crore.
THE BRIGHT SIDE
The market has clearly left the crash behind and is betting on robust growth in the coming future. "Equity markets have continued its northward journey in the month of December 2020 making new highs, this has been on back of continued FII liquidity and on-going interest in emerging markets including India. We have seen an exciting Q2FY21 earnings season, and the post earnings commentary by key companies also indicate strong underlying growth trends for 3QFY21. We also expect the government to prioritise growth in the forthcoming budget with a push towards fiscal spends and incentives for consumption," said Akhil Chaturvedi, Associate Director and Head of Sales, Motilal Oswal AMC.
Despite the net outflows in various categories the overall AUM of the equity category grew from Rs 8.57 lakh crore at the end of November this year to Rs 9.06 lakh crore at the end of December 2020. "MF Industry AUMs at an all-time high, increase in Retail Folios and also SIP folios, is reflective of Investor confidence in mutual fund asset class," said N S Venkatesh, Chief Executive, AMFI.
There have been various regulatory measures by SEBI and the most prominent being the reclassification of multi-cap funds and introduction of flexi-cap funds. This has led to realignment of investment both by fund houses and investors. Investors are now taking interest in some new funds also.
"There has been renewed interest in some of the recent NFO's and existing open-ended schemes in the last month which has aided a bump up in gross sales of Rs 26,000 crore in December 20 as compared to Rs 14,000 crore in November 20. Re-allocation of large part of these redemptions would be in direct equities where the experience of investors have been good in recent past, alongside demand for IPOs and real estate would also have sucked up the liquidity," said Chaturvedi of Motilal Oswal AMC.
Given the record valuation at which the equity market is currently operating in, profit booking by investor comes as a natural reaction to valuation concerns. "The continuation of net outflows from equity funds could be attributed to profit booking/portfolio rebalancing as markets continue to touch new highs. In fact, the net outflow number would have been higher had it not been for the NFOs across multiple equity categories which collected Rs 7,600 crore," said Srivastava of Morningstar India.
The biggest worry which drives investors to pull out money remains the fear of any impending correction. "There is a general belief that markets are expensive and over-heated, hence a healthy correction should not be written off and this could probably create fresh interest to make allocations back in equity mutual funds and reversal of negative sales trend for the industry," said Chaturvedi of Motilal Oswal AMC.
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