Covid-19 lockdown: MF equity flows could see a 10-15% dip in March

The 27 trillion rupee mutual fund (MF) industry may see some slowdown in March, with estimates (up to March 27 for 80% of the industry’s assets) suggesting a drop from 10 to 15 % to 9,100 to 9,700 crore rupees in equity. segment. Industry players say the flows were resilient in a very volatile month which also saw MF branch closings due to the coronavirus-induced lockout.

Compared to the average of the last 12 months of Rs 6,984 crore, the estimated equity flows are still 30 to 38% higher.

The monthly flows for the industry are generally published with a delay of 7 to 10 days.

“Flows have been solid, although there has been some decline. The current sale has also given fund managers an opportune time to deploy liquidity in markets where multiple stocks are trading in mid and small cap segments at attractive valuations, “said a fund manager.

In addition, industry participants suggest that the flows remained high even during the lockout period, even though the offline channels were suddenly closed due to the nationwide lockout.

According to industry estimates, the equity regimes garnered a net flow of 1,150 crore rupees last week when the three-week lockout was implemented by the government.

“Digital channels have allowed flows to continue despite the challenges. Distributors as well as individual investors have used digital channels effectively to make the investments, ”said another fund manager.

Digital platforms have also experienced increased traction. “We have seen lump sum flows increase. Existing investors have increased allocations in systematic investment plans (SIPs) on our platform. Although the section of new investors moving from offline to online is limited, there has been a recovery of DIY investors who want to follow up and make quick decisions online, “said Harsh Jain, co-founder, Groww, Bengaluru. digital platform.

Experts say top investors could have made a big contribution to the buyout requests to record losses during the year-end period in order to ease taxes.

Equity-linked savings plans or ELSS – which are used by investors to realize tax-related savings – recorded large flows of 1,075 crore rupees in March, up 23.4% from in the previous month. Experts say ELSS could continue to see decent flows as the government extended the deadline to complete investments until June 30 starting March 31, 2020.

However, the arbitrage funds could see Rs 25,000 crore – Rs 30,000 crore in net outflows so far in March. Experts argue that this can be attributed to the fact that futures contracts start trading at spot market prices due to increased market volatility.

“This temporary dislocation of the markets had weighed on the yields of arbitrage schemes,” said an executive at a fund house.

Meanwhile, debt regimes have likely experienced much higher repayments, as companies seek to dip into their investments to meet their payment obligations, as daily operations were interrupted during a deadlock.

Repayment pressures had increased in debt programs with nearly Rs.1 trillion in investment withdrawn in the week before the foreclosure was announced.

The fear of repayment pressures in debt regimes was compounded by the anticipation of flows at the end of the quarter and at the end of the year.

This prompted the MF industry to write to the Reserve Bank of India (RBI) to provide liquidity support. Last week, RBI announced Rs 3.74 trillion in liquidity enhancement measures, which implied that banks should also absorb supply pressures in the corporate bond market through mutual funds and non-bank financial companies.

“This decision should help finance the houses to deal with the buyouts.” The debt market is now experiencing improved liquidity as a result of RBI intervention, ”said a debt fund manager.

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