by Moiz Mannan
After a considerable period of lows, the Indian mutual fund industry appears to have bounced back, showing a jump of close to 19.5 percent in the just concluded financial year.
What this means is that the fund managers are better equipped to implement their strategies for higher returns to their customers. One important fact that has come out is that a good proportion of the improved figures was contributed by long-term fixed income funds.
We have been observing and commenting on the remittance and investment patterns of non-resident Indians and we have seen that a risk-averse attitude has driven most of them towards bank deposits. We have also seen that the continued uncertainty over keeping overseas jobs has created an urgent need for NRIs to think in the long term while making investment decisions.
NRIs are understandably rattled by the swings in stock indices and suppress the desire for higher earnings through equity-based products to go in for secure options. However, the safer options, mainly debt, can hardly beat the rates of inflation in the medium or long term. It is only equity which can do that.
The more astute among them are, therefore, clearly veering back towards the safer options in equity investment such as mutual funds. According to a recent estimate, more than six percent of the assets under management (AUM) are held by overseas Indians. This, in absolute terms, would be a tidy sum.
The only hitch is in the confidence part. The latest data released by the Association of Mutual Funds in India (AMFI) tells us that in 2012-13 the assets under management jumped by over Rs1.5 trillion over the previous year to touch the figure of Rs8.2 trillion. Of the 44 fund houses, 39 entities saw their AUMs rise during the period.
Market experts largely attributed the rise in AUM to a number of factors, including steps taken by the government and market regulator Sebi (Securities and Exchange Borad of India) to revive the equity culture in the country and help channel household income into stocks and mutual funds.
The fund houses collect money from investors and invest it in various market segments, including stocks, IPOs (primary market) and bonds. Most of the top 10 asset management companies (AMCs) have outperformed the industry’s growth with a wide margin. For instance, Birla Sun Life Mutual Fund, ICICI Prudential MF, Kotak MF, IDFC MF and SBI MF, among others, registered a growth of between 25 and 40 percent during the year. On the other hand, giants such as HDFC MF and Reliance MF managed to post a growth of 13 percent and 21 percent, respectively.
Analysing the figures, leading fund managers have pointed towards good and steady flows into long-term fixed income funds. High flows in the intermediate to long-term bond funds in the debt category are said to have pushed up assets of the industry.
Interestingly, most of the asset inflows came in the second half of FY13 as expectations were building up for rate cuts. Gilt funds, which invest primarily in government securities, attracted a sum of Rs10bn for several months in the second half.
For those who are worried too much over the health of the Indian economy, let it be known that Foreign Institutional Investors (FIIs) poured in a record Rs. 1.4 trillion ($26bn) into the country’s stock markets in 2012-13.
According to statistics released by Sebi, This was the highest net inflow by FIIs in a single fiscal year since their entry into Indian capital markets in 1992-93, in which year they had invested Rs130m.
Agencies, quoting market experts, have said that the reforms initiatives undertaken by the government to boost economic growth and investor sentiment have led to a renewed interest among the foreign investors. The growing uncertainty in Euro Zone has also found FIIs shifting focus to emerging markets such as India.
The huge FII inflows came despite the number of FIIs registered in India dipping to 1,757 this fiscal from 1,765 at the end of fiscal year ended March 31, 2012. The Sebi report further informs that FIIs were also pumping money in the debt market and infused close to Rs. 290 bn in this segment in 2012-13.
