Domestic mutual funds (MFs) continue to pour money into equity markets even as the frontline benchmark indices are trading near all-time high, with their net flow hitting a record high during the current calendar year 2017 (CY17).
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Till September 7 2017, MFs have pumped in a net Rs 73,428 crore in equities, surpassing their previous high recorded two years ago. During the entire calendar year 2015 (CY15), they had made a net investment of Rs 72,199 crore in equities. In CY15, MFs reported net inflow of Rs 48,170 crore.
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Their net investment thus far in CY17, is 5.8 times higher as compared to CY16, when they put Rs 12,538 crore in equities, according to data with the Securities and Exchange Board of India (Sebi) show.
The benchmark S&P BSE Sensex and Nifty50 have gained by about 20% and 23%, respectively in the first nine months of the current calendar year.
By comparison, foreign portfolio investors (FPIs) have invested Rs 42,652 crore thus far in CY17 in the Indian equity segment, NSDL data show. During the same period last year, their investment in the equity segment stood at around Rs 51,294 crore.
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"The general fall in interest rates across savings products has seen investors flock to mutual funds, who, in turn, deployed this cash in the equity markets. That apart, investors have become more aware of the available financial products and planned their investments accordingly. All this has led to increase in cash levels with the MFs,"" explains Ramnath Venkateswaran, fund manager - equity at LIC Mutual Fund.
Among individual stocks, MFs have increased their stake by over one percentage points in past six months in 165 firms, data analysis of 942 companies from the S&P BSE 500 and S&P BSE Small-cap index show. Auto ancillaries, airlines, chemicals, cement, financials, steel and textile sectors have been their favourites.
Going ahead, analysts believe the sudden gush of liquidity into the markets seen earlier on the back of drop in interest rates may not repeat itself. Even then, the overall flows of mutual funds and foreign investors will remain healthy and keep markets buoyant, they say.
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"The external flows are linked to the risk appetite. Investors world over are chasing growth, and India is a prime candidate in this context. We believe India can deliver on the growth promise and the visibility of growth is reasonably high," says Sanjay Mookim, India Equity Strategist, Bank of America Merrill Lynch.
In terms of sectors, Venkateswaran says the sectors that have done well over the past few years may now take a backseat and money may find its way into sectors like pharmaceuticals that have been beaten down badly. That apart, he is also bullish on the public sector banking space given the governments' and the Reserve Bank of India's (RBI's) resolve to tackle the non-performing asset (NPA) issue. From a two - three year perspective, utilities is also a sector he likes.