Mutual Fund inflows in December lowest since June 2014

ET INTELLIGENCE GROUP: Domestic mutual funds reported tepid inflow of Rs 3,108 crore in December, the lowest monthly inflow since the BJP-led government took charge in June 2014. In addition, it was less than half the average monthly inflows in the past 18 months. Fewer working days during the month, floods in Chennai, and a sustained flow of negative news from around the world are cited as some of the reasons for the weak inflows. Experts believe that the drop in inflows is a temporary phenomenon and that the domestic mutual funds may see inflows of as much as $15-20 billion in 2016 since equities still command a low share in households’ financial savings.

The lower inflows in December are due to several reasons. One, a spate of negative news such as the US Federal Reserve’s first rate hike in a decade, China’s continued currency devaluation, inordinate delay in passing key reform bills including GST and bankruptcy bill in Indian parliament and the sharpest earnings downgrade in fifteen years.

Second, floods in Chennai affected the inflows from South India. Chennai’s market accounts for 4.8% of the total equity asset under management. Third, there were fewer number of working days for banks in December due to public holidays. In addition, several foreign banks typically reduce the transition volumes at the end of the calendar year, which affected the fund inflow.

“The drop in December inflows is transitory. We expect flows to revive in the medium term. What gives confidence to us is that inflows from the systematic investment plans are fairly intact,” said A Balasubramanian, CEO at Birla Sun Life AMC. He expects inflows of Rs 60,000-62,000 crore in the next fiscal year on conservative side and believes that his inflows estimate carries significant upside risk. CLSA, expects $15 billion (around Rs 97,000 crore) of inflows from the domestic investors in 2016.

If Indian households deploy 4-5% of the total $400-billion (20% of GDP) saving, this may translate into $15-20 billion inflows into domestic MFs. Sustainability of inflows will also depend on the performance of midcap stocks as well as on the stickiness of systematic investment plans (SIP) inflows. Flows into domestic MFs from September 2014 to November 2015 accounted for 29% of total AUMs of mutual funds and were supported by outperformance of the midcap sector and sustained inflows from SIP.