Why are MF managers going against the grain?

Just when the bourses have the bulls roaring, and foreign portfolio investors (FPIs) are turning record buyers of Indian equities, the net investment data of mutual funds (MFs), collated by market regulator Securities and Exchange Board of India (SEBI), shows that MF managers have been playing smart.

In November, MFs were net sellers of equities on the bourses to the tune of ₹22,665 crore—the highest single–month outflow in the last five years since 2016. Interestingly, when the S&P BSE Sensex touched its latest 52-week low of 25,638.90 points during March, MFs were net buyers of equities worth over ₹30,285 crore.

This was in contrast to FPIs’ being net sellers of equity, to the tune of ₹61,973 crore in March. And, since June, while FPIs have cumulatively been net buyers of equity to the tune of ₹1,48,590 crore, MFs have been net sellers of equities worth ₹60,201 crore.

If the eleven months of 2020 are considered, there too MFs have emerged as net sellers of equities worth ₹19,985 crore. In fact, over the last five years, if one were to look at January to November period, since 2016, the only instance of MFs being net sellers of equities is recorded during 2020. The highest MFs equities’ buying of ₹1,17,816 crore was seen in the eleven months of 2018, followed by ₹1,10,441 crore in 2017.

When it comes to MFs’ net investments in debt, the ₹1,92,525 crore buying in debt during the eleven months of 2020 have been the lowest over the last five years. As, the eleven months of 2019 saw the highest debt buying of ₹4,85,842 crore, followed by ₹3,62,670 crore, ₹3,07,825 crore, and ₹2,69,081 crore in 2017, 2016, and 2018 respectively.

A comparison of net debt investments of MFs to FPIs also reveal a stark contrast during 2020. While MFs were cumulative buyers of debt worth ₹1,92,525 crore between January and November, there were only two months—March and April—when MFs were net sellers of debt worth ₹19,646 crore and ₹9,795 crore.

On the other hand, eight months out of 11 saw FPIs as net sellers of a cumulative ₹1,16,647 crore which was mainly fuelled by March’s record outflow of ₹60,376 crore. And, there were just three months when FPIs were net buyers of debt which cumulatively added to just ₹7,696 crore.

The monthly equities’ comparison of FPIs and MFs also reveals that the latter have been net sellers in seven out of the 11 months, with a cumulative selling value of ₹68,167 crore. In the four months when MFs were net buyers, the cumulative buying value comes to ₹48,182 crore—where March buying alone stood at ₹30,286 crore.

In contrast, FPIs have been net buyers in eight of the 11 months with a cumulative value of ₹1,84,884 crore—where November saw a record inflow of ₹60,358 crore followed by ₹47,080 crore in August. The three months when FPIs were sellers the cumulative outflow has been ₹76,639 crore—where March saw the record single–month outflow of ₹61,973 crore.

Alongside the recovery in the indices, MFs being net sellers of equities points at asset managers’ cashing out on the bullish sentiments. While this would help investors see growth in their investments, there are reasons to believe that fund managers would have ample liquidity to buy equities in the event of corrections.

As such, the March investment numbers imply that MFs managed to buy nearly 49% of the value of equities that FPIs sold.