Mutual Funds: Equity flows were strong in Nov

Strong momentum sustained for India’s equity MFs for the ninth month, with net inflows of Rs 227 bn (vs Rs 214 bn in Oct) as the equity base continues to expand with more folios every month. Notably, gross redemptions slowed materially m-o-m, cushioning the impact of lower NFO intensity. AuM share of equity stayed at ~49% and should support blended yields. SIPs have scaled new highs (~`110 bn). ETF+FOF flows were strong but flat m-o-m, while debt funds saw outflows.

Positive momentum of equitisation stays: Equity mutual funds (ex arb) had yet another strong month, despite a volatile market in Nov’21. Net flows rose to Rs 227 bn vs. Rs 214 bn in Oct’21. Net flows were supported by significantly lower redemptions this month (Rs 317 bn vs Rs 461 bn average in Aug-Oct’21) and an ever rising folio count (115 mn+ in Nov’21)—implying continuing expansion of equities into newer customers. SIP flows have continued to grow unabatedly, up 4% m-o-m to the highest monthly levels of Rs 110 bn (per CNBC). Nov SIP inflows are up 17% vs. monthly average of Rs 94 bn in H1FY22 and >40% better vs. the protracted lows seen in CY20.

Strength despite moderation in new offers: We are particularly enthused that equity flows were strong despite new fund offers (NFOs) slowing down materially in Nov (-71% m-o-m to Rs 18 bn). This should also help blended yields for industry participants and our covered stocks, HDFCAMC and NAM, even as market share gains have been elusive for them. NFOs tend to be less margin-accretive. Equity AuMs were lower sequentially due to an M2M hit of ~2% owing to a weak equity market. Nonetheless, Equities’ share in overall AuM sustained at 49%.

Pure equity funds see better trends: Traction was broad-based, with each subcategory of equity funds witnessing net inflows. Pure equity funds did better than hybrids, registering Rs 116 bn of inflows (up 122% m-o-m). Flexicap funds were strongest during the month, with Rs 27 bn flows (1.2% of AuM). Large-cap, mid-cap and sectoral funds saw strong flows of ~Rs 12-16 bn. Balanced advantage funds saw some abatement, with a ~46% m-o-m decline, though on absolute basis, the net flows were still highest, at Rs 61 bn (~4% of AuM).

ETFs flows rise a tad, debt sees outflows but credit funds slowly creeping up: ETF + FoF flows were reasonable at Rs 75 bn, up 4%MoM. ETF AUM was down 1% m-o-m to Rs 4.1 trn and now forms 11% of total AuM. Flows for debt funds remain volatile, with outflows of Rs 257 bn (vs. inflows of Rs 120 bn in Oct-21). Notably, while credit fund flows have been moderate, a streak of positive flows in the past seven months has led to ~Rs 18 bn of cumulative flows since.