Indian two thousand and five hundred rupee banknotes are arranged for a photograph in Mumbai, India (Photographer: Dhiraj Singh/Bloomberg)  

Here’s Proof Of How Domestic Mutual Funds Are Upstaging Foreign Investors

Mutual funds saved the value of institutional investments from shrinking last year even as overseas investors sold Indian equities, underscoring the extent to which domestic asset managers provided support to the Indian market.

Asset management companies account for a little under 16 percent of the total equity assets of institutions compared with a 43 percent contribution by foreign portfolio investors as of December, according to data available on the website of National Securities Depository Ltd.

The value of stocks managed by mutual funds rose by 1.02 lakh crore in 2018 compared with a Rs 96,837-crore decline in investments by foreign portfolio investors.

Total equity assets rose by over Rs 44,000 crore or by 1 percent last year, the slowest pace in seven years. What that means is that if not for the contribution by mutual funds, the total investments by institutions in equities would have contracted.

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That’s a contrast from a few years ago when selling by FPIs spooked Indian markets. Mutual funds have emerged as a counterbalance for overseas investors with household savings being funnelled into equities, more so after demonetisation. According to the market regulator’s data, asset management companies saw inflows worth Rs 1.12 lakh crore in 2018 even as foreign investors sold stocks worth Rs 33,014 crore.

Overall assets, including stocks, debt, hybrid instruments and gold held by institutions through custodians grew at 3 percent to Rs 97.5 lakh crore, the slowest pace in seven years, show the NSDL data. Mutual funds contributed 22 percent, while FPI accounted for 32.2 percent of total assets as of December.

The assets under management with mutual funds are growing faster than any other category, and surpassed even insurance companies’ total investments for the third straight month in December at more than Rs 10 lakh crore.

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Other Highlights

  • Alternate investments funds, including private equity and hedge funds, are another asset class that grew substantially in 2018, with equity assets increasing by 50.5 percent to Rs 36,556 crore.
  • Assets with local pension funds invested by EPFO and NPS rose by nearly Rs 10,000 crore.
  • Assets of portfolio managers remained flat as the mid-cap rout eroded the value of their investments.
  • Assets held through depository receipts and foreign currency convertible bonds declined by half.
  • Foreign direct investments grew 8.1 percent to Rs 61,152 crore.
  • Equities account for 65 percent of the total institutional assets, down 1.6 percent over the previous year.
  • Debt assets grew 8 percent.

Last year, India’s broader market didn’t fare well as a mid-cap rout followed by the crisis for non-bank lenders in the second half wiped off returns. While the Nifty 50 Index rose 3.2 percent and the Sensex ended 5.9 percent higher, the Nifty Midcap 100 and Nifty 500 lost 15.4 and 3.4 percent, respectively.

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