Tue, Apr 10, 2018 - Page 12 News List

Fund flows slow in India as stock swings and holdings tax spur risk of bad mood

Bloomberg

Inflows into Indian equity funds last month were the smallest in 13 months as some investors sold before a tax on stock holdings took effect from April 1 and volatility returned to markets worldwide.

Equity funds took in a net 66.6 billion rupees (US$1.03 billion), the least since last February, data from the Association of Mutual Funds in India (AMFI) showed.

That is less than the average of 142.5 billion rupees a month in the past year.

Shares tumbled globally toward the end of last month as trade skirmishes between the US and China cooled demand for riskier assets. India’s S&P BSE Sensex benchmark entered its first correction in more than 15 months as the sell-off hit investor sentiment already weakened by the government’s decision to bring back a tax on equity gains after 14 years to boost revenue.

“Global volatility spooked some investors into redeeming funds as our market fell 10 percent in a little over a month from its January high,” FundsIndia head of research Vidya Bala said.

Exits by institutional investors looking to avoid the tax by selling before March 31 contributed to the reduced inflows, she said.

Even so, flows should recover in the coming months as AMFI data suggest that mom-and-pop investors are buying the dip.

Equity funds posted total sales of 436.4 billion rupees last month, versus 346.41 billion rupees in February.

“If we look at the numbers closely, we see that the gross inflows continue to rise, which is a key positive in volatile times,” said Siddharth Bothra, senior vice president and fund manager at Mumbai-based Motilal Oswal Asset Management Co. “The secular story of more Indians putting their savings into financial assets stays.”

There was concern that a move to end the tax break on equities would affect flows from individual investors, who have flocked to funds since Indian Prime Minister Narendra Modi took office in 2014.

Continued local flow support of US$2 billion to US$2.5 billion a month is needed to support the equity paper supply expected in the year that began April 1, CLSA India Pvt said in a note.

Local stock funds received 1.71 trillion rupees of net inflows in the fiscal year ended last month, more than double those of the same period a year earlier, the AMFI data showed.

Inflows into balanced funds, which buy stocks and bonds, jumped 34 percent over February to 67.5 billion rupees, the data showed.

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