iifl-logo

Invest wise with Expert advice

By continuing, I accept the T&C and agree to receive communication on Whatsapp

sidebar image

Banking and IT boost mutual fund asset base in June 2024

18 Jul 2024 , 01:12 PM

JUNE 2024 – ACTIVE EQUITY FLOWS TOUCH LIFETIME RECORD

For the second month in a row, the flows into equity funds touched an all-time high. In May 2024, the equity fund inflows had created a new record of ₹34,697 Crore. However, June managed  to better that by a margin, setting a new record for monthly equity fund inflows to the tune of ₹40,608 Crore. Let us first look at the overall picture of mutual fund flows in June 2024. For the month of June 2024, mutual funds overall saw net outflows of ₹46,637 Crore, largely due to a sell-off in debt funds to the tune of ₹1.07 Trillion. 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. While there is still some caution about buying these smaller stocks at higher price levels, much of the retail interest is still concentrated on these smaller stocks; with a greater potential to generate alpha.

Let us now turn to what triggered inflows into mutual funds in June 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 June 2024 were strong at ₹15,227 Crore, of which active equity funds collected more than 94% of the inflows. The bulk of the flows into equity funds came from the systematic investment plans (SIPs), which saw record flows of ₹21,262 Crore in June 2024. While this is the highest ever SIP flows recorded in any month till date; the situation is still very satisfactory for India as SIP flows have been above ₹20,000 Crore in each of the 3 months in FY25. All this translated into domestic mutual funds remaining net buyers in Indian equities to the tune of ₹28,226 Crore in June 2024; compared to ₹48,099 in May 2024 and ₹32,824 Crore in April 2024. It looks like the mutual funds are taking a back seat in flows, now that the FPIs are back with a bang in Indian equity markets.

JUNE 2024 – WHICH STOCKS DID INDIAN MUTUAL FUNDS PREFER?

One must remember that ₹28,226 Crore of infusion by mutual funds into equities on a net basis, is nearly $3.50 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 June 2024. The MF buying was driven by IPOs and secondary market purchases in the month of June 2024. In fact, 4 out of the top-5 stock buys of mutual funds in June 2024 were IPO stocks; viz., Stanley Lifestyles, DEE Development Engineers, Le Travenues Technology (IXIGO), and Allied Blenders & Distiller . Here is a quick dekko.

  • The most preferred stocks in June 2024 was Sanofi Consumer Healthcare Ltd, saw total investments from mutual funds to the tune of ₹970 Crore in the IPO and this was the only secondary market purchase by mutual funds among the Top-5
  • The second most preferred stock for mutual funds overall in June 2024 was the IPO of Stanley Lifestyles, which came out with its IPO during the month of June 2024. The company saw total investments from mutual funds to the tune of ₹491 Crore in the IPO and also post listing for the month of June 2024.
  • The third most preferred stock in June 2024 was the IPO of DEE Development Engineers, which also came out with its IPO during the month of June 2024. The company saw total investments from mutual funds to the tune of ₹269 Crore in the IPO and also post listing for the month of June 2024.
  • The fourth most preferred stock in June 2024 was the IPO of Le Travenues Technology (IXIGO), which also had come out with its IPO during the month of June 2024. The company saw total investments from mutual funds to the tune of ₹179 Crore in the IPO and also post listing for the month of June 2024.
  • The Fifth most preferred stock in June 2024 was the IPO of Allied Blenders & Distillers Ltd, which also came out with its IPO during the month of June 2024. The company saw total investments from mutual funds to the tune of ₹175 Crore in the IPO and also post listing for the month of June 2024.

Apart from these IPOs, the mutual funds also added other new stocks into their portfolio like Om Infra, Marathon NexGen, Thejo Engineering, EMS Ltd, Dredging Corporation and Deccan Cements. On the sell side, mutual funds took full exit from several stocks that included Shipping Corporation of India Land & Assets, Oriental Aromatics, Rajapalayam Mills, and SRM Energy Ltd.

UNDERSTANDING THE MF FLOW STORY FOR JUNE 2024

Before we get into sectoral preferences of equity funds in the Indian context in the month of June 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 ₹27.68 Trillion (net AUM) as of the close of June 2024. The table below captures the active fund break up as of June 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 68,57,791 6,962 2,253 4,709 1,54,025
Large Cap Fund 1,41,29,880 5,724 4,753 970 3,45,362
Large & Mid Cap Fund 98,34,494 5,777 2,865 2,912 2,43,589
Mid Cap Fund 1,52,74,241 7,215 4,687 2,528 3,59,426
Small Cap Fund 2,02,96,496 6,966 4,702 2,263 2,96,408
Dividend Yield Fund 9,52,532 868 347 520 28,229
Value Fund/Contra Fund 67,21,735 4,121 2,094 2,027 1,73,898
Focused Fund 50,69,662 2,534 2,821 -287 1,43,382
Sectoral/Thematic Funds 2,24,97,544 30,709 8,357 22,352 3,83,271
ELSS 1,63,71,644 1,943 2,388 -445 2,39,022
Flexi Cap Fund 1,50,26,296 8,326 5,268 3,059 4,01,386
Total Active Equity Funds 13,30,32,315 81,145 40,537 40,608 27,67,999

Data Source: AMFI

As you can see in the table above, the active equity funds have a total of 13.30 Crore folios while they manage a total AUM of ₹27.68 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 of hybrid funds and the of index funds and index ETFs. These are passive replications of an underlying index; but they constitute equity holdings nevertheless. The total equity holdings of the hybrid funds and passive funds in India comes to ₹10.73 Trillion, taking the total value of equity holdings as of June 2024 to ₹38.41 Trillion. This figure is critical because the overall equities held by Indian mutual fund are actually to the tune of ₹38.41 Trillion, of which 72.1% of this AUM is held by active equity funds shown in the table above, while the balance 27.9% of this overall AUM is held jointly by hybrid funds and passive funds like index funds and index ETFs. When we refer to the sectoral mix of equity holdings of mutual funds, our universe is not ₹27.68 Trillion of active equity fund AUM but the overall ₹38.41 Trillion of overall equities held by mutual funds as of the close of June 2024.

HOW MF SECTORAL PREFERENCES SHIFTED IN JUNE 2024?

We shall look at the shifting MF preferences between the previous month and the current month on two parameters. First, we shall look at the change in absolute rupee terms and then we shall look at the change in percentage terms. Why do we look at the absolute numbers also? 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. Let us first look at sectoral shifts in the holdings of Indian mutual funds in terms of absolute rupee change. While there are 28 sectors in all, we shall only focus on the top-15 sectors for the purpose of our analysis.

Top 15
Sectors
MCAP-MAY-24
(₹ in Crore)
MCAP-JUN-24
(₹ in Crore)
MOM Change
(₹ in Crore)
MOM Change
(in % terms)
Banking & Finance 10,12,832 10,89,699 76,867 7.05%
IT-Services 2,98,569 3,45,315 46,746 13.54%
Auto & Auto Ancillaries 3,49,363 3,84,042 34,679 9.03%
Pharmaceuticals 2,80,862 2,97,753 16,891 5.67%
Oil & Gas 2,31,165 2,47,022 15,857 6.42%
Telecom 1,05,435 1,20,713 15,278 12.66%
Consumer Durables 76,335 87,922 11,587 13.18%
Chemicals & Fertilizers 88,946 1,00,060 11,114 11.11%
FMCG 1,80,339 1,91,020 10,681 5.59%
Retail 82,081 91,926 9,845 10.71%
Construction Materials 76,454 86,207 9,753 11.31%
Capital Goods 1,52,850 1,59,905 7,055 4.41%
Power 1,15,251 1,19,850 4,599 3.84%
Realty 49,482 52,211 2,729 5.23%
Alcohol 21,209 23,871 2,662 11.15%

The above data is the absolute growth in the market cap between May 2024 and June 2024 on a sector-wise basis. We have only listed out  the top-15 sectors in terms of absolute change in AUM between the previous monty and the current month. 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 Banking & Finance, IT Services, Automobiles, Pharmaceuticals, and Oil & Gas. That is not surprising 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 in the past, but this time around, banking has made a sharp turnaround, while IT has been a surprise inclusion in the top rung.

Let us first look at the sectoral triggers. Banking and financials were the big gainers on hopes that the Fed would cut rates sooner rather than later. The CME Fedwatch is pegging the first rate cut to happen in September, plus one more rate cut in the month of December. That would make it 2 rate cuts in 2024; against the SEBI guidance of just one rate cut in the year 2024. The second sector to show substantial accretion in AUM in June is the IT sector. The reasons are not far to seek. Most large IT companies were available at compelling valuations. Also, with the dollar hardening, the IT sector offered the best proxy stock to hedge against further weakening in the rupee. The third sector to see substantial pick-up in flows was the automobiles sector. 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 green-shoots of revival. A good monsoon is expected this year and that is likely to come as the Manna from Heaven. Other sectors were relatively low key in the month.

The only sector to see an MOM fall in AUM was the Media and Entertainment sector which was largely driven by the stock price performance of Zee Entertainment. That is more of a larger business context risk after the deal with Sony fell through. Let us now turn to the percentage change in the AUM on a MOM basis.

HOW SECTORAL PREFERENCES CHANGED IN PERCENTAGE TERMS

While the absolute shift shows heft, it is the percentage increase that shows retail participation. Check the table below.

Top 15
Sectors
MCAP-MAY-24
(₹ in Crore)
MCAP-JUN-24
(₹ in Crore)
MOM Change
(₹ in Crore)
MOM Change
(in % terms)
Paper 736 955 219 22.93%
IT-Services 2,98,569 3,45,315 46,746 13.54%
Consumer Durables 76,335 87,922 11,587 13.18%
Telecom 1,05,435 1,20,713 15,278 12.66%
Construction Materials 76,454 86,207 9,753 11.31%
Alcohol 21,209 23,871 2,662 11.15%
Chemicals & Fertilizers 88,946 1,00,060 11,114 11.11%
Retail 82,081 91,926 9,845 10.71%
Plastic Products 17,436 19,426 1,990 10.24%
Diversified 16,621 18,516 1,895 10.23%
Textile 24,122 26,660 2,538 9.52%
Auto & Auto Ancillaries 3,49,363 3,84,042 34,679 9.03%
Diamond & Jewellery 20,872 22,913 2,041 8.91%
Banking & Finance 10,12,832 10,89,699 76,867 7.05%
Aviation 19,192 20,595 1,403 6.81%

The percentage gains segment in April 2024 throws light on smaller sectors in terms of MF holdings. Paper was the star in terms of mutual fund demand. However, IT and Telecom figured in this percentage list also in the top.

IPO buying in the month of June 2024 was seen across the board, although mutual funds continue to be cautious about stock valuations at higher levels. However, that is a dilemma that few have been able to resolve.

Related Tags

  • LargeCaps
  • MF
  • midcaps
  • MutualFunds
  • smallcaps
sidebar mobile

BLOGS AND PERSONAL FINANCE

Read More
Knowledge Center
Logo

Logo IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000

Logo IIFL Capital Services Support WhatsApp Number
+91 9892691696

Download The App Now

appapp
Loading...

Follow us on

facebooktwitterrssyoutubeinstagramlinkedintelegram

2025, IIFL Capital Services Ltd. All Rights Reserved

ATTENTION INVESTORS

RISK DISCLOSURE ON DERIVATIVES

Copyright © IIFL Capital Services Limited (Formerly known as IIFL Securities Ltd). All rights Reserved.

IIFL Capital Services Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
ARN NO : 47791 (AMFI Registered Mutual Fund Distributor)

ISO certification icon
We are ISO 27001:2013 Certified.

This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.