Indian market crash channeling funds into MFs
The latest selloff in Indian stock markets is driving money to mutual funds (MFs). More particularly fixed income mutual funds are gaining momentum amid ongoing bear market. Asset managers see rising inflow of funds in fixed income debt plans.
January witnessed the highest amount of inflows in the preceding three months as equities started tumbling on the domestic bourses. The S&P BSE Sensex index dropped five percent. On the other hand, Rupee sovereign bonds returned 81 percent last year. Kotak Mahindra Asset Management Co and Axis Asset Management Co forecast surging inflows of funds into fixed income debt plans.
Live Mint adds further that the cost to lock in borrowing costs fell from two-week high following the Reserve Bank of India (RBI) taking measures to ease pressure on cash crunch. There's also speculation making rounds in the market that RBI will cut interest rate by June this year. Global funds are increasing their Rupee-denominated debt, while reducing their exposure to Indian equities.
Nilesh Shah, managing director at Kotak Mahindra Asset in Mumbai, said: "Inflows to fixed income will pick up as equities underperform and if interest rates come down, which oversees INR55,100 crore. It's natural for equity investors to pause a little as their return expectations have not yet materialized."
The funds inflow into income funds rose in January indicating highest since October 2015 as it was close to INR150billions. Market analysts consider this is a natural trend that equity exposures get reduced during market crash and at the same time, income funds gain momentum. The consumer prices rose 5.69 percent in January. This was higher than the average forecast of 5.4 percent, as reported by Bloomberg.
Indicating highest level since October 2015, income funds received INR15,010 crore in January, according to Association of Mutual Funds in India (AMFI). The net inflows from April 2015 were INR29,710 crore. By contrast, INR2,130 crore received by stock funds in January, lowest in 21 months. The total net inflows during April-January period were INR 69,180 crore (1crore= 10 million).
Income funds are a form of mutual funds focusing on current income based on monthly or quarterly performance. The liquid or monetary market witnessed a net inflow of INR2,455 crore and balanced fund investment rose INR880crore, according to The Economic Times. In general the asset base of the country's fund houses eased to INR12.74 lakh crore (trillions) in January 2016 from INR12.75 lakh crore in December 2015.
Reserve Bank of India's Governor Raghuram Rajan may take a decision to cut interest rate by 25 basis points to 6.50 percent in June. The Central bank lowered interest rate by 125 basis points in 2015 and this was the biggest cut in the past six years.