Capital flows continued to decline in the second month as market volatility affected investor sentiment. In May, the 50 Nifty units fell by 2.8% after a strong recovery in the previous month.
According to the Association of Mutual Investment Funds of India, the net inflow of funds under fund programmes amounted to Rs.5256, a decrease of 15% compared to the previous month.
As markets consolidated after overclocking, investors thought about taking money off the table. Investors’ appetite for new allocations has also declined, said DP Singh, executive director and marketing director of SBI Mutual Fund (MF).
At the same time, the monthly contribution also fell by three percent as a result of Systematic Investment Plans (SIPs). In May these flows amounted to Rs 8,123.03, compared to Rs 8,376 in the previous month.
The experts argue that the SIP flows provided a buffer for the monthly capital flows.
The inflow of equities was lower than in previous months, but remained positive, mainly due to the SIP inflow. Given volatile markets and the uncertain economic conditions resulting from the Kovida pandemic, investors continue to prefer diversified, large-cap funds, according to Kaustubh Belapurkar, director (management research) of Morningstar India.
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With the exception of large and mid-caps, all classes of shares have experienced a slowdown in capital flows. For the large and medium category, flows more than doubled in May to Rs 703.
In May, markets were under pressure due to a combination of various factors. Analysts say that concerns about growth prospects, disappointment with the government’s stimulus package and the growing number of cases of Covid-19 have contributed to weakening sentiment.
After an increase of more than 14% in April, the stock market ended in red in May.
On the debt side, the net cash outflow related to the credit risk on Rs. 5.173,04. However, the net outflow was significantly lower than last month’s outflow of Rs 19,000 due to the conversion of Franklin Templeton MF to its six shipyard programmes.
The aversion of investors to credit risks is reflected in the inflow of funds into corporate bond funds and bank and OBSI debt funds. The inflow of funds into corporate bond funds was Rs. 3,831.52 million, while the debt fund of banks and the banking sector received Rs. 8,873.35 million in May.
Investors are looking for more secure loan funds. Sentiment towards funds exposed to credit risk was low. Between the credit risk and the risk period, investors are more open to the latter, Singh said.
In May, Rs. 1,947.08 was received for the gilding of funds. These funds are invested in government or central government debt instruments.
In the average maturity category, which is considered to be another credit-oriented category, the net outflow of Croatian rupees was 1 519,72.
However, in the shorter maturity categories, positive flows were observed in May following the outflow in the previous month. In May, cash inflow was 10% lower at Rs 61,870.87 million.
Revenues from mediation procedures increased by 64% to Rs. 10.806. According to experts, this category could face problems if market volatility persists and if future prices are traded at a cash discount.
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