WHY MUTUAL FUND FLOWS MATTER?
Mutual funds in India first showed their clout when FPIs went into a selling spree between October 2021 and June 2022. During this period, fears of high inflation led FPIs to sell Indian stocks to the tune of $32 Billion. However, the markets were not overtly perturbed as the net flows from LIC and the domestic mutual funds were to the tune of $53 Billion. This more than compensated for the FPI outflows and ensured that the markets maintained their levels. Today, mutual fund manage more than $700 Billion and their AUM in India is almost as much as the FPIs. LIC manages over $600 Billion so the combined clout of LIC and domestic mutual funds is huge. That is the actions of mutual funds matter.
There are different ways to look at the mutual fund churn. For instance, one way is to look at the large funds in terms of AUM and focus on which are the stock they bought and sold. A more interesting way would be to look at what were the stocks that the mutual funds overall bought and sold at a macro level. Here we will look at how the sectoral shifts have happened and which are the preferred sectors of mutual funds. In addition, we also look at some of the favourite stocks of mutual funds and the broad themes of stock selection among mutual funds during the month. This time around, we focus on the mutual fund action in the month of May 2024.
MAY 2024 – ACTIVE EQUITY FLOWS TOUCH LIFETIME RECORD
To put in a nutshell, the situation in May consolidated on the gains of April 2024. The important news was that the equity funds saw record inflows in the active equity funds category. Let us first look at the overall picture of mutual fund flows in May 2024. For the month of May 2024, mutual funds overall saw net inflows of ₹1.11 Trillion, largely led by ₹42,295 Crore of inflows from debt funds. Equity fund net inflows at ₹34,697 Crore in May 2024, was at an all-time record level and is a welcome respite after 3 consecutive months of lower active equity fund flows. Within the equity fund theme, sectoral / thematic funds, flexi cap funds, multi-cap funds and small cap and mid-cap funds saw bulk of the equity fund inflows. The good news is that small cap funds are back to seeing net inflows after a brief lull in the last few months due to a barrage of regulatory warnings.
Let us now turn to the sources of inflows into mutual funds in May 2024; or where did the mutual funds get their money from. Let us talk about the new fund offerings (NFOs) first. The total NFO flows in May 2024 were strong at ₹10,140 Crore, of which active equity funds collected more than 95% of the inflows. The NFO of HDFC Manufacturing Fund dominated the NFO story in the month, raising ₹9,564 Crore in the month of May 2024. The bulk of the flows into equity funds cam from the systematic investment plans (SIPs), which saw record flows of ₹20,904 Crore into SIPs in May 2024. While this is the highest ever SIP flows recorded in any month till date; the month of May 2024 also saw record SIP stoppage ratio, something that is not too gratifying to investors or to the markets. All this translated into domestic mutual funds turning net buyers in Indian equities to the tune of ₹48,099 in May 2024; sharply higher than ₹32,824 Crore in April 2024. Interestingly, this comes at a time when the FPIs (foreign portfolio investors) were net sellers in the month of May 2024.
MAY 2024 – WHICH STOCKS DID INDIAN MUTUAL FUNDS PREFER?
One must remember that ₹48,099 Crore of infusion by mutual funds into equities on a net basis, is nearly $6 Billion. That is big enough to create an impact. But, what are the stocks that the mutual fund bought and sold in the month of May 2024. The MF buying was largely driven by IPOs in the month of May 2024. In fact, the top-5 stock buys of mutual funds in May 2024 were all IPO stocks; viz., Go Digit General Insurance, Aadhar Housing Finance, TBO Tek Ltd, Indegene Ltd, and Awfis Space Solutions. Here is a quick dekko.
Apart from these IPOs, the mutual funds also added other new stocks into their portfolio like Technocraft Industries Ltd, Yuken India Ltd, Kirloskar Industries Ltd, and Parag Milk Foods Ltd. On the sell side, mutual funds took full exit from several stocks that included GMR Power, GOCL Corporation Ltd, Zuari Agrochemicals, Federal Mogul Goetze, Rane Madras, and Shukra Jewellery.
UNDERSTANDING THE MF FLOW STORY
Before we get into sectoral preferences of equity funds in the Indian context in the month of May 2024, it is important to understand the composition of the equity funds universe in India. In India, equity stocks are owned predominantly by active equity funds. However, there are large chunks of equities held by hybrid funds and passive funds also. We will come back to that later. Currently, active equity funds hold Indian equities to the tune of ₹25.40 Trillion (net AUM) as of the close of May 2024. The table below captures the active fund break up as of May 2024.
| Active Equity Fund Categories |
No. of Folios (Absolute) |
Purchases (₹ in Crore) |
Redemptions (₹ in Crore) |
Net Inflows (₹ in Crore) |
Net AUM (₹ in Crore) |
| Multi Cap Fund | 65,13,410 | 4,531.30 | 1,886.42 | 2,644.88 | 1,39,034 |
| Large Cap Fund | 1,39,88,501 | 5,685.40 | 5,022.31 | 663.09 | 3,23,156 |
| Large & Mid Cap Fund | 96,41,201 | 5,566.68 | 3,169.77 | 2,396.91 | 2,23,990 |
| Mid Cap Fund | 1,47,90,033 | 6,585.41 | 3,979.71 | 2,605.70 | 3,28,183 |
| Small Cap Fund | 1,98,32,640 | 6,568.37 | 3,843.70 | 2,724.67 | 2,70,581 |
| Dividend Yield Fund | 9,25,566 | 825.14 | 379.87 | 445.27 | 26,050 |
| Value Fund/Contra Fund | 65,28,568 | 3,622.88 | 2,218.54 | 1,404.34 | 1,60,639 |
| Focused Fund | 50,77,097 | 2,272.26 | 2,578.82 | -306.55 | 1,34,589 |
| Sectoral/Thematic Funds | 2,05,67,662 | 25,959.41 | 6,745.98 | 19,213.43 | 3,37,280 |
| ELSS | 1,63,07,461 | 1,954.35 | 2,204.15 | -249.80 | 2,23,727 |
| Flexi Cap Fund | 1,47,75,146 | 7,700.36 | 4,545.29 | 3,155.07 | 3,72,549 |
| Total Active Equity Funds | 12,89,47,285 | 71,271.56 | 36,574.56 | 34,697.00 | 25,39,778 |
Data Source: AMFI
As you can see in the table above, the active equity funds have a total of 12.89 Crore folios while they manage a total AUM of ₹25.40 Trillion on a net basis. Now, let us put equity ownership in context. When we look at sectoral preferences, we don’t look at only the active equity funds, but also the equity holdings in hybrid funds and the substantial equity holdings of index funds and index ETFs, which are basically passive replications of an underlying index. The total equity holdings of the hybrid funds and passive funds in India comes to ₹10.09 Trillion, taking the total value of equity holdings as of April 2024 to ₹35.49 Trillion. This figure is critical because the overall equities held by Indian mutual fund are actually to the tune of ₹35.49 Trillion, of which 71.6% of this AUM is held by active equity funds shown in the table above, while the balance 28.4% of this overall AUM is held jointly by hybrid funds and passive funds like index funds and index ETFs. Now, when we look at the sectoral mix of equity holdings of mutual funds, our universe is not ₹25.40 Trillion of active equity fund AUM but the overall ₹35.49 Trillion of overall equities held by mutual funds as of the close of May 2024.
HOW MF SECTORAL PREFERENCES SHIFTED IN MAY 2024?
We shall now look at how the sector preference of Indian holdings shifted; both in terms of the absolute change in value and also in terms of percentage change. There is a reason we look at both. The absolute numbers are more meaningful, but are biased towards the larger sectors with substantial market cap. At the same time, the percentage change gives due weightage to the large sector and small sectors and just look at the mutual fund traction in terms of incremental AUM. Let us first look at sectoral shifts in the holdings of Indian mutual funds in absolute value terms. We will only look at the top 15 sectors in terms of absolute change in holding value.
| Top 15 Sectors |
MCAP-APR-24 (₹ in Crore) |
MCAP-MAY-24 (₹ in Crore) |
MOM Change (₹ in Crore) |
MOM Change (in % terms) |
| Automobiles | 3,22,663 | 3,49,363 | 26,700 | 8.27% |
| Capital Goods | 1,34,396 | 1,52,850 | 18,454 | 13.73% |
| FMCG | 1,72,828 | 1,80,339 | 7,511 | 4.35% |
| Infrastructure | 1,14,275 | 1,21,330 | 7,055 | 6.17% |
| Metals & Mining | 1,22,661 | 1,28,942 | 6,281 | 5.12% |
| Consumer Durables | 70,415 | 76,335 | 5,920 | 8.41% |
| Banking & Finance | 10,07,245 | 10,12,832 | 5,587 | 0.55% |
| Telecom | 1,01,748 | 1,05,435 | 3,687 | 3.62% |
| Realty | 46,079 | 49,482 | 3,403 | 7.39% |
| Pharmaceuticals | 2,78,831 | 2,80,862 | 2,031 | 0.73% |
| Shipping & Logistics | 38,167 | 40,079 | 1,912 | 5.01% |
| Abrasives | 10,668 | 12,218 | 1,550 | 14.53% |
| Aviation | 18,123 | 19,192 | 1,069 | 5.90% |
| Power | 1,14,359 | 1,15,251 | 892 | 0.78% |
| Textile | 23,381 | 24,122 | 741 | 3.17% |
The above data is the absolute growth in the market cap between April 2024 and May 2024 on a sector-wise basis. It must be remembered that equity fund AUM is a mix of flows and value accretion; so even the change will be a mix of flows and value accretion. In the above case, the MOM absolute growth is led by Automobiles Capital Goods, and FMCG, which is hardly a surprise considering the recent momentum in their favour. What are some of the key takeaways from the table above? Mutual funds have shown a predilection for automobiles, capital goods and FMCG. Let us look at the story behind this shift.
The auto sector has several factors in its favour. Input cost are coming down, demand is picking up and the rural market is finally showing signs of revival. A good monsoon is expected this year and mutual funds are preparing themselves. Capital goods is also not a surprise considering that the government is investing so aggressively into capex. There is finally a bet on the revival of the capital investment cycle and that is working in favour of these stocks. Lastly, FMCG also appears to be a case of low crude oil benefits and the rural factors. But, FMCG also represents a reasonable hedge in volatile markets.
Some of the sectors that saw MOM fall in AUM include IT services, chemicals, and retail. IT has been under pressure for some time, while chemicals may be facing a global glut. Obviously, mutual funds are trimming positions there. Let us now turn to the percentage change in the AUM on a MOM basis.
| Top 15 Sectors |
MCAP-MAR-24 (₹ in Crore) |
MCAP-APR-24 (₹ in Crore) |
MOM Change (₹ in Crore) |
MOM Change (in % terms) |
| Abrasives | 10,668 | 12,218 | 1,550 | 14.53% |
| Capital Goods | 1,34,396 | 1,52,850 | 18,454 | 13.73% |
| Consumer Durables | 70,415 | 76,335 | 5,920 | 8.41% |
| Automobiles | 3,22,663 | 3,49,363 | 26,700 | 8.27% |
| Realty | 46,079 | 49,482 | 3,403 | 7.39% |
| Infrastructure | 1,14,275 | 1,21,330 | 7,055 | 6.17% |
| Aviation | 18,123 | 19,192 | 1,069 | 5.90% |
| Metals & Mining | 1,22,661 | 1,28,942 | 6,281 | 5.12% |
| Shipping & Logistics | 38,167 | 40,079 | 1,912 | 5.01% |
| FMCG | 1,72,828 | 1,80,339 | 7,511 | 4.35% |
| Telecom | 1,01,748 | 1,05,435 | 3,687 | 3.62% |
| Diversified | 16,077 | 16,621 | 544 | 3.38% |
| Textile | 23,381 | 24,122 | 741 | 3.17% |
| Plastic Products | 17,035 | 17,436 | 401 | 2.35% |
| Power | 1,14,359 | 1,15,251 | 892 | 0.78% |
The percentage gains segment in April 2024 throws light on smaller sectors in terms of MF holdings. Abrasives was the star in terms of mutual fund demand. However, capital goods and automobiles figured in this percentage growth list also in the top-5. Consumer goods is one addition to that list, as is realty.
IPO buying in the month of May 2024 was seen across the board, although mutual funds continue to be cautious about IPO valuations at higher levels. But, as Keynes said, markets can remain irrational much longer than individual investors can stay solvent!
Related Tags
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Securities Support WhatsApp Number
+91 9892691696
Download The App Now
Follow us on
2024, IIFL Securities Ltd. All Rights Reserved
Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.
Invest wise with Expert advice
