Should mutual fund investors worry about FII outflows?

Foreign Institutional Investors (FIIs) sold Indian equities worth Rs 325 crore on January 10. The FIIs pulled out Rs 3,008 crore so far in January, NSDL data shows. The outflows in December was Rs 8,176 crore. Market analysts are attributing the outflows to the likely interest rate hikes in the USA. Should mutual fund investors be worried?

“I don’t think there is anything to panic about. There are a lot of inflows from mutual funds and insurance companies. Also, investors are looking towards equities more because the other assets have become redundant. So, I think the situation is quite balanced at this point,” says Vinit Sambre, Fund Manager, DSP BlackRock Mutual Fund.

While the foreign investors are pulling out their money from the Indian markets, the domestic institutional investors (DIIs) are putting in more and more money. The DIIs bought Indian equities worth Rs 96.82 crore on January 10, according to a report by BNP Paribas Mutual Fund. Experts claim that the FII outflows will be balanced by the inflows from DIIs and the markets will continue to rally in the run up to the budget in February.


This is not to say that FII action won't impact the market at all. FIIs are the driving force behind Indian markets. And their participation or lack of participation always weigh on the market sentiment. The rate hikes and the Trump presidency may offer to key to their long-term strategy.

"These outflows are temporary. The FIIs that are pulling out their money are the short-term ones which will eventually come back. There are long-term investors who aren't pulling out their money even now. India is relatively a much better place for FIIs to invest than most of the emerging markets. We are expecting good inflows in the medium to long term," says Sambre.

In the meanwhile, Vinit Sambre thinks investors should use the opportunity to invest more in equity funds. “Investors should use such opportunities to enhance their allocation in equity funds, depending on their risk profile. Next two to three years are going to be pretty decent for the equities in India,” he says.

Finally, you should always remember that you have invested in equity mutual funds to meet your long-term financial goals because they have the potential to offer superior returns over a long period. You should remind yourself this every time there is a short-term volatility in the market. Don't let such phases influence your long-term investments. Go on with your plans to meet your financial goals.