Mumbai: The market watchdog SEBI's recent warning that there is lot of "froth" in the mid- and small-cap stocks has had small cap funds seeing net outflow of Rs 94 crore in March, a first in the past 30 months, even as the overall mutual fund industry has added Rs 14 trillion taking the total AUM past Rs 53.40 trillion in FY24, shows the latest monthly data from Amfi.
According to, fund houses lobby Association of Mutual Funds in India (Amfi) chief executive Venkat Chalasani, systematic investment plans (SIPs) contribution to the mutual funds industry has reached a new peak at Rs 19,271 crore in March -- hitting new highs for the 15th time in 18 months --compared to Rs 19,186 crore in February, even as overall net flows across the industry have seen an outflow of Rs 1.59 trillion in the month, led by debt-oriented schemes.
Reacting to the SIP inflows, Swarup Mohanty, vice-chairman of Mirae Asset Investment Managers said, the consistent surge in SIP flows, surpassing Rs 19,000 crore for the second consecutive month, signals a promising trajectory and see segment hitting a milestone of Rs 25,000 crore by the end of 2024.
Flows into small-cap funds turned negative for the first time since September 2021 after the Securities and Exchange Board had recently asked mutual funds to protect investor interest as a lot of "froth" is being built up in the broader equity market and mandated AMCs to disclose the stress test results for the midcap and small cap funds every 15 days.
The purpose of the stress test was to ascertain how soon fund managers can liquidate their portfolios if investors were to rush for redemptions under adverse market conditions, Morningstar India analyst Melvyn Santarita said.
He further said this has possibly led to some concerns among investors. Additionally, some found houses have also opted to stop lumpsum investments and keep only the SIP/STP/switch option open for further investments in their small and mid-cap funds, possibly due to concerns regarding high valuation. But both these reasons have culminated into these categories witnessing sharp dip in net inflows.
It can be noted that small cap funds been leading the inflows during the past 17 months, while mid-cap funds saw inflows worth Rs 1,018 crore, down 44 percent from February, and large-caps saw inflows rise 131 percent to Rs 2,128 core, which is a 21-month high.
On the other hand, inflows into equity-oriented schemes dropped nearly 16 percent in March to Rs 22,633 crore from February levels. While the slight moderation in equity inflows can be due to redemptions that happen at the end of the fiscal year, the positive net inflows indicate that investors remained positive on equities, said Chalasani.
Domestic equity funds have seen net inflows aggregating to Rs 5.04 trillion over the past 37 months, well above net foreign inflows of Rs 41,042 crore, over the same period.
Industry leaders attributed the outflows from small-caps to the concerns of froth raised by Sebi, forcing them to move a large chunk of their portfolio to large-cap stocks. Following this small- and mid-cap indices dropped 4.41 percent and 0.54 percent, respectively, in March.
Manish Mehta of Kotak Mahindra AMC said rising market led to profit booking by investors while SIPs continue to be encouraging. Fixed income flows were negative due to year-end phenomenon.
Karthick Jonagadla of Quantace Research, said the steadfastness of SIP contributions, consistently exceeding Rs 19,000 crore for two months, signals a shift towards a more disciplined investment strategy among investors.
Nonetheless, we should maintain a balanced outlook as market conditions evolve and with potential central bank policy adjustments on the horizon, the appeal of debt instruments may be revitalized, he said.
Sanjay Agarwal, a senior director with Care Ratings the net outflow can be attributed to the advance tax requirement that corporates need to meet, even though the outflows were more broad based with all the categories except for three witnessing net outflows.
Melvyn Santarita of Morningstar India said favorable market conditions over the last couple of years saw investors getting high returns in these small and mid caps segments and consequently, investors have also flocked to these categories with ever increasing flows.
