Net equity investments of mutual funds (MFs) on the bourses at the end of 2019 have come down by over 55.6% to ₹53,614.5 crore from ₹1,20,734.7 crore a year ago. In comparison, foreign portfolio investors (FPIs) pumped in a record ₹1,01,120.8 crore in equities in 2019—the year-ago period had seen an outflow of ₹33,013.1 crore.
But, the big highlight of 2019 was net investments by mutual funds in debt which stood at ₹5,32,176.8 crore. This in comparison to the 2018 total of ₹3,34,316.4 crore, was higher by 59.2%—or ₹1,97.860.4 crore in absolute terms. In contrast to MFs, FPIs registered a net inflow of just ₹25,880.4 crore. In effect, MFs’ debt investments during 2019 were over 20.6 times higher than that of FPIs, while FPIs invested nearly 1.9 times more in equity compared to MFs.
In the run-up to the 2019 general elections, while FPIs were net buyers to the tune of ₹68,131.6 crore between January to April 2019, MFs in the same period were net sellers to the extent of ₹2,661.6 crore. In March and April, in particular, FPIs bought equities worth ₹55,174 crore, while MFs were net sellers in those two months to the tune of ₹11,995.8 crore.
On a monthly basis, FPIs were net sellers in debt over six months during 2019, while MFs were net buyers in the range of ₹26,450.2 crore (February) to ₹71,448.5 crore (March). FPIs on the other hand were sellers to the tune of ₹6,037.3 crore in February while they bought debt worth ₹12,001.6 crore in March. While March saw highest net investment in debt from both FPIs and MFs, the later bought nearly six times more.
It would be fair to claim that MFs took advantage of the pre-election rally in equity, as they were net sellers in three months; March: -₹7,396.2 crore, April: -₹4,599.7 crore, and November: -₹4,821.7 crore. In contrast FPIs were net buyers of equity to the tune of ₹33,980.6 crore, ₹21,193.5 crore, and ₹25,230.6 crore in the respective months.
Going forward, as the Reserve Bank of India (RBI) resumes rate cuts to arrest moderating GDP growth rate with a close eye on inflation, mutual funds betting heavy on debt could generate relatively good returns.