Indian equity fund inflows plunge as euphoria fades

May's 48b rupees and April's 45.9b rupees a mere drop of Q1's 449b rupees

Business Times - 20 Jun 2008

(MUMBAI) Investors are shying away from Indian equity funds as a sustained slump in the stock market wipes out a major chunk of their stunning gains in 2007, but the industry is not yet facing pressure from redemptions.

Diversified stock funds delivered returns of nearly 60 per cent in 2007, as the benchmark stock index rose 47 per cent.

But with the market down about a quarter so far in 2008, investors have seen the value of their holdings cut by almost a third and have started cutting back on new investments.

'There has been a slowdown in the flows of equity funds in the last two months,' Sanjay Prakash, chief executive of the Indian fund unit of HSBC, told Reuters. 'We are seeing net inflows every day, but very small amounts,' said Mr Prakash, whose firm saw its average monthly assets drop 0.95 per cent to 184.7 billion rupees (S$5.9 billion) in the six months ended May.

Mesmerised by a sixfold rise in the stock market in the five years to the end of 2007, investors saw a 23 per cent drop in the March quarter as a buying opportunity, pouring in 449 billion rupees into the funds, 67 per cent more than a year earlier.

But as the market slump persisted, euphoria has given way to caution. Flows into equity funds slumped to 45.9 billion rupees in April, the lowest since August 2006, and about 48 billion rupees in May, data from the Association of Mutual Funds in India (AMFI) shows.

The money is mainly coming from pre-set investment plans where a fixed sum is deposited regularly into the funds.

The industry body estimates that there are about three million of such accounts.

'Slowdown is in the high net-worth and institutional segment,' said Vikrant Gugnani, the chief executive of India's No 1 fund firm, Reliance Capital Asset Management.

He said that big-ticket investors were no longer looking at stocks, shifting instead into real estate, gold and fixed-maturity plans, which are essentially close-end bond funds investing in securities in line with their maturity profile.

Investors may not be topping up their funds, but they are also not in a hurry to pull out of them. Outflows of 36 billion rupees in May were the lowest since July 2006, AMFI data shows. Outflows in January, when the stock market hit a record high and before dropping sharply, were more than two times those of May, but inflows were even higher at a record of 212.5 billion rupees. Indian shares fell to a 2008 low of 14,645 on June 10\. \-- Reuters

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