mutual funds: MFs selling spree continues; withdraw Rs 30,760-cr from equities in Nov


NEW DELHI: Continuing their selling spree for the sixth straight month, mutual funds pulled out Rs 30,760 crore from equities in November on profit booking and experts believe the outflow trend will continue unless there is correction in markets.

With this, net withdrawal by mutual funds (MFs) has reached to over Rs 28,000 crore in the first 11 months of the ongoing year (January-November), data available with the Securities and Exchange Board of India (Sebi) showed.

The markets, despite the withdrawals from mutual funds in the last few months, have continued to rise as flows from FPIs have been robust.

Foreign Portfolio Investors (FPIs) have put in over Rs 1.08 lakh crore in the Indian equity markets during January-November period of 2020.

“With markets touching new highs and Nifty PE (private equity) valuations crossing 36 times, there is profit booking happening. This is visible from the increased ‘outflow’ number compared with September -October,” said Vidya Bala, co-founder of PrimeInvestor.in.

The gross inflows have also not picked up much as the impact of COVID-19 on individual investor’s income is yet to normalise, she added.

Making similar statement, Omkeshwar Singh, head RankMF at Samco Securities, said there has been a very sharp rally in November coupled with markets at an all-time high, which prompted many investors to book profits as they are not very comfortable at this level and the same can be visible in the latest data.

According to the data, MFs pulled out Rs 30,760 crore from equities in November. This has taken the outflow to over Rs 68,400 crore since June.

MFs withdrew Rs 14,492 crore in October, Rs 4,134 crore in September, Rs 9,213 crore in August, Rs 9,195 crore in July and Rs 612 crore in June.

However, they invested over Rs 40,200 crore in the first five months of the year (January-May). Of this, Rs 30,285 crore was invested in March.

Divam Sharma, co-founder at Green Portfolio, said the rise in markets and higher valuations have triggered the recent withdrawals from equities.

Going ahead, Bala said, “we expect equity outflows to continue to remain tepid until there is some correction in the equity market”.

Kaustubh Belapurkar, Director – Manager Research at Morningstar India said net inflows into equity schemes from investors, which could be triggered by a market correction or a longer term visibility of pick-up in economic growth, would result in net positive investments by MFs in stocks.

Green Portfolio’s Sharma said decent correction would induce investors to increase equity allocations going forward.

“Robust Q2 performance by companies and a better expected Q3, rising GST collections, and positive liquidity from global investors shall arrest any significant withdrawals from equities in the near term,” he added.





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Global equities to enter week at all-time highs


Support for the stock market came last week from clear signalling from the US Federal Reserve at the Jackson Hole Symposium that it intends to keep monetary policy loose.

Market participants welcomed the Fed’s announcement of its new inflation targeting regime, seeing it as a strong enough signal that it intends to keep monetary policy accommodative well into the future.

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Along with a lift in risk assets, both of those factors also drove a broad-based decline in the US Dollar last week. The US Dollar Index hit a new two-year low on Friday, pushing the AUD/USD in turn above 73 cents and to its highest point since December 2018.

It was one reason why the ASX 200 underperformed global peers last week. The ASX 200 closed 0.61 per cent lower for the week, but 1.63 per cent higher in US Dollar terms, as local earnings season wrapped up and broadly exceeded market expectations.

Though the reporting period still has a few companies to report, ASX-listed companies have beaten earnings estimates at a 2-to-1 ratio this season, while earnings upgrades have slightly outstripped downgrades.

Market participants will shift their focus from corporate fundamentals to local and international macroeconomic concerns in the week ahead.

The RBA meets on Tuesday and is expected to keep its full suite of policies unchanged. Instead, the market’s attention will be on any clues from the RBA about future policy adjustments, in response to what’s likely to be a more protracted recession for the Australian economy.

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Technically speaking, Australia’s first recession in 29-years will be confirmed this week. The ABS releases GDP data for the second quarter on Wednesday, with economists tipping growth in the Australian economy contracted by -6.2 per cent on a year-over-year basis.

All key components of GDP are expected to have contracted last quarter, bar one: government spending, which is projected to have grown by a considerable 5.4 per cent in the second quarter.

The week in global markets will be capped off by August’s US Non-Farm Payrolls data, which is expected to reveal the US economy added 1.5 million jobs for the month.

As doubts linger amidst widespread social and political turmoil, along with the devastating, albeit improving effects of the COVID-19 crisis in the US, the Non-Farm jobs numbers will be a barometer of what momentum the US, and therefore global, economic recovery still possesses.

Listen to the Short Squeeze, our weekly markets podcast produced in conjunction with IG here. Episodes last for about 10 minutes and are also available through Spotify and Google Podcasts.

This column was produced in commercial partnership between The Sydney Morning Herald, The Age and IG. Information is of a general nature only.

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Has the stock market lost its mind? Probably. But there’s a slim chance that equities are entering a new era of high valuations


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