Equity flows continued to dip for a third straight month as market volatility took a toll on investor sentiment. In May, the 50-share Nifty shed 2.8 per cent after a strong recovery the previous month.
“As markets consolidated post the run-up, investors considered taking money off the table. Also, investors’ appetite to make fresh allocations has also reduced,” said DP Singh, executive director and chief marketing officer at SBI Mutual Fund (MF).
Meanwhile, monthly contribution through systematic investment plans (SIPs) also saw dip of three per cent. In May, these flows stood at Rs 8,123.03 crore compared to Rs 8,376 crore in previous month.
Experts say SIP flows have given cushion to monthly equity flows.
"Inflows into equity funds, while lower than previous months, continue to remain positive largely driven by SIP inflows. Investors continue to prefer large- and multi-cap funds given the market volatility and uncertain economic environment due to the Covid pandemic," said Kaustubh Belapurkar, director (manager research), Morningstar India.
Barring large and mid-cap fund, all equity categories saw a slowdown in flows. For large and mid-cap category, the flows more than doubled to Rs 703 crore in May.
Markets were under pressure in May due to a combination of factors. Analysts say concerns over growth outlook, disappointment over government's stimulus package and rising cases of Covid-19 contributed to weakening sentiments.
After over 14 per cent gains in April, equity markets ended in the red in May.
On the debt side, credit risk funds continued to see net outflows of Rs 5,173.04 crore. However, net outflows were considerably lower than previous month, which saw Rs 19,000 crore of net outflows in light of Franklin Templeton MF’s move to wind-up six of its yield-oriented schemes.
Investors’ aversion to credit risks could be seen from inflows into corporate bond fund and banking & PSU debt funds. Corporate bond funds saw inflows of Rs 3,831.52 crore, while banking & PSU debt fund received flows of Rs 8,873.35 crore in May.
“Investors are looking at safer debt funds. The sentiments towards credit risk funds have been weak. Between credit risk and duration risks, investors would be more open to take the latter,” Singh said.
In May, gilt funds received flows of Rs 1,947.08 crore. These funds invest in debt papers issued by state or central government.
Medium duration, which is seen as another credit-oriented category, saw net outflows of Rs 1,519.72 crore.
Meanwhile, shorter duration categories saw positive flows in May after seeing outflows in previous month. Flows into liquid funds were 10 per cent lower at Rs 61,870.87 crore in May.
Arbitrage schemes saw 64 per cent jump in flows at Rs 10,806 crore. Experts say the category could see challenges if market volatility continues and future prices trade at discount to cash.
