Will they continue to dominate equity markets in 2016?
The big story of the Indian equity markets in 2015 was the emergence of mutual funds as a serious player. Post 2009, equity mutual funds had seen fund outflows for each quarter, for five years till the first half of 2014. Post mid-2014, retail money has come back in droves into mutual funds. In the calendar year 2015, nearly $15 billion was invested by retail investors into equity mutual funds. So how did it impact Indian markets?
MFs trump FIIs in 2015…
During the year 2015, FIIs invested nearly $3 billion in the month of January. But whatever they invested post January was all taken out post the Yuan crisis in August. Effectively, the FIIs ended the year with net investments of just $3 billion. Mutual funds, on the other hand, invested nearly $10.4 billion into the equity markets during the year. In fact, they were largely responsible for the markets holding on post August despite FII outflows and global growth concerns.
What exactly changed for MFs?
Mutual fund investors came back into the market after the reformist euphoria brought in by the new government. That was a welcome change from the stagnation in policy that Indian suffered between 2010 and 2014. Coupled with the RBI’s stance on managing a calibrated depreciation of the rupee, this helped to build retail confidence in equity markets. That really helped in the aftermath of the currency and FII flow crisis of 2013. Lastly, investors were finding marginal returns on other investment classes diminishing. Real estate became volatile, gold was consistently losing value and debt returns were likely to fall in a falling interest scenario. In these conditions, the only asset class that held promise was equities. That probably explains the sudden interest in equity mutual funds.
Will this euphoria continue?
The good news is that the coming year is also likely to see elevated interest in equity mutual funds. Firstly, with the RBI likely to cut rates, equity will automatically emerge as a preferred asset class. Secondly, while the index may have lost value in 2015, there are pockets of value among large caps and mid-caps that have continued to outperform. That is where professional stock selection comes in handy. Which is exactly what an equity mutual fund brings and that is why it is becoming the preferred route for retail investors to enter into equities. Also, a chunk of the funds are coming into the mutual funds through the SIP route. This proffers the added benefit of rupee cost averaging to investors.
Indian mutual funds and investors may have finally come of age. Expect another good year in 2016 for MFs. ©
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