Equity MFs at 21-month low in November; Why do investors prefer Smallcap, Midcap?

Equity-oriented schemes registered inflows, as per AMFI data 2,258.35 crore — much less than the inflow seen in October 9,390.35 crores. big hat Funds were worst hit with outflows of 1,038.84 crore in November, while mid Cap And smallcap funds made . registered strong buying with inflows of 1,176.31 crore and 1,378.24 crores. Thematic funds also bought 1,379.68 crore, though declining from the inflow of 2,686.33 crore in October.

“The decrease in inflows can be attributed to some profit booking in the large-cap segment in the wake of market rally in the month of November 2022,” said Melvin Santarita, Analyst-Manager Research, Morningstar India.

Analysts at Morningstar said, “In view of the correction in mid and small caps last year, investors are increasingly allocating their money to this segment of the market, possibly viewing it as a good investment opportunity. Also, It is worth pointing out that index money and ETF Steady inflows are being seen, which may mean that investors may move to passive funds as opposed to active funds in the large-cap segment.”

Talking about the market performance, Santarita said, Indian markets continued their stupendous run in November 2022 as it witnessed broad-based rallies across large, mid and small caps. While DIIs were net sellers of Indian equities, FIIs returned as buyers in the month of November 2022, given how resilient the Indian economy and markets are compared to other Market throughout the last year. Global markets also reacted on a positive note as US inflation showed signs of easing and the US Fed hinted at further small rate hikes.

Further, Manish Maryada, Co-Founder & CEO, Fellow pointed out that despite economic uncertainties, India stock market has been at an all-time high and the recent trends in Nifty and Sensex records speak for the same. From November 2020 to November 2021, AUM for equity funds has seen a huge growth of 50% but if you look at the growth from November 2021 to November 2022, it has increased by 21%.

Maryada said, though growth is significant, there are several reasons why the growth percentage has not been the same as last year.

The CEO of Fellows, which is India’s first game-based savings and investment platform, revealed that based on their consumer feedback and primary market research, we observed that retail investors became repulsive to save and invest during the pandemic and equity Picked the market, specifically mutual funds, and invested without any primary research.

However, with the recent volatility in the markets, the fellow CEO said that investors have become much more adversarial and thoughtful before investing.

“They now prefer to do market research before investing and invest in smaller ticket sizes before investing in larger ticket sizes. This is a very healthy factor where retail investors are adapting to the markets and investing Cultivating healthy behavior before,” Maryada explained.

On the other hand, debt-oriented schemes eventually saw inflows 3,668.59 crore liquid funds extended their strong buying for the second straight month in November 34,276.44 crores. Rupees were withdrawn from debt mutual funds in October 2,817.79 crore, however, liquid funds limited the selloff by registering inflows 19,084.60 crore during this month.

Within the debt segment, liquid funds saw significant inflows, according to Priya Agarwal, Money Coach, LXME 34,276 crore, followed by money market funds and corporate bond funds. RBI is continuously taking measures to control inflation, due to which repo rates are being increased to keep inflation within the tolerance level of RBI. Due to this interest rates in the economy are rising which may affect the growth in flows.

Unlike equity and debt, hybrid schemes saw money flowing out of their basket 6,477.33 crore due to rapid outflow of arbitrage funds in the month of November 4,074.64 crores.

Among other schemes, index funds recorded maximum buying from investors in November, with inflows coming 8,601.73 crores. Notably, gold ETFs saw outflows 194.74 crores in November.

Aggarwal said, “Gold ETFs saw net withdrawal 194 crores this month while the net inflow in the previous month was Rs. 147 crores. This could be due to profit-booking amid rally in markets and demand for gold from households during the current wedding season.

Due to vigorous buying in index funds, it managed to offset losses from hybrid funds, leading to inflows into open-ended mutual fund schemes 9,936.52 crore in November.

Among close-ended mutual fund schemes, fixed-term plan funds were top picks as they registered inflows 3,274.46 crores. However, due to the outflow of ₹34.30 cr in ELSS, close-ended MFs see inflows 3,240.16 crores.

Coming to Systematic Investment Plans (sip), with SIP contributions hitting new record highs, investor appetite continues to grow strong in November as well 13,307 crores.

Overall, in the mutual fund market, Rs. observed flow of 13,263.56 crore in November as compared to 14,046.98 crore in the month of October. Meanwhile, the net assets under management as of November 2022 was 40,37,560.81 crores.

Disclaimer: The views and recommendations given above are of individual analysts or broking companies and not of Mint.