Flows to India stock funds rebound as rally spurs risk appetite

MUMBAI • Flows into Indian equity mutual funds hit a five-month high in March, induced by the rally that recently lifted the US$2.2 trillion (RM9.02 trillion) stock market to a record.

Stock funds took in about 118 billion rupees (RM6.96 billion), the highest since October, and more than double over the previous month, data from the Association of Mutual Funds in India, or AMFI, show.

Indian equities posted their best month in three years in March as foreign investors plowed more than US$6 billion — the most since September 2010 — on the prospect of Prime Minister Narendra Modi winning a second term in elections starting this week and as a dovish shift by global central banks revived demand for riskier assets.

“Volatility has come down a little and markets have shown a bit of an uptrend, all of which rubbed off on mutual-fund flows,” NS Venkatesh, CEO at AMFI, said in a conference call yesterday. “The sentiment is positive.”

Robust liquidity from domestic institutional investors have helped buffer the market against outflows sparked by global shocks in recent years. This backstop had weakened following a drop in flows to equity plans for four months through February. Mutual fund and insurance firms yanked out a combined 139.3 billion rupees from shares last month, the most in three years, even as India emerged as Asia’s top destination for overseas money this year.

Total assets rose 3% month-on-month to 23.8 trillion rupees. Money- market funds witnessed outflows of 513.4 billion rupees in March, the most since December, typically seen at end of quarter and fiscal year. Debt funds saw an inflow of 139 billion rupees, while balanced funds suffered an outflow of 31.8 billion rupees, the AMFI data show.

Meanwhile, India’s cash crunch is taking its toll on the health of companies and risks inflicting further financial damage, after the credit profile of local firms deteriorated at the fastest pace in six years. — Bloomberg