The Indian mutual fund industry, which has witnessed a 135 percent surge in net inflows and nearly 39 percent growth in net AUM (Assets under Management) over the last year, is likely to experience a multi-fold increase in the coming year, with India being a bright spot in the global economy, according to an ICRA Analytics report.
The total inflows into mutual funds during November 2024 touched ₹60,295.30 crore, a growth of 135.38 percent compared to the inflows of ₹25,615.65 crore in November 2023. The net AUM registered a new milestone of ₹68.08 lakh crore in November 2024. During the same period last year, the net AUM was ₹49.05 lakh crore, reflecting a 39 percent YoY growth.
This stellar expansion in the AUM was due to steady inflows into equity schemes, which shot up by 131.35 percent to ₹35,943.49 crore in November 2024, as against ₹15,536.42 crore last year. Since the beginning of the calendar year 2024, inflows into equity mutual funds were up by 65.03 percent from ₹21,780.56 crore in January 2024.
Indian markets are now facing significant fluctuations ahead of the start of 2025. Factors such as sluggish global growth, increasing protectionism, and geopolitical uncertainties have heightened market volatility and fueled investor concerns.
However, amidst the headwinds, ICRA noted, the Indian mutual fund industry has showcased resilience backed by a sense of optimism regarding the growth prospects of the Indian economy, strong participation from retail investors, a broadening investor base, and growing interest and awareness among investors from smaller cities regarding mutual funds.
While all equity funds witnessed robust growth, it was the largecap funds that stole the show as the inflows to this category zoomed nearly 731 percent at ₹2547.92 crore in November 2024 as against ₹306.70 crore in the same period last year.
Sectoral/thematic funds followed next with inflows surging by 289.77 percent to ₹7657.75 crore; flexi cap by 204.88 percent to ₹5084.11 crore; largecaps and midcaps by 153.31 percent to ₹4679.74 crore; and value/contra fund by 66.79 percent to ₹2088.01 crore, as per ICRA.
However, in terms of AUM, sectoral/thematic funds witnessed the maximum growth of 94.78 percent to ₹4.62 lakh crore; the largecaps and midcaps by 54.25 percent to ₹2.68 lakh crore; flexi cap by 42.13 percent to ₹4.35 lakh crore and smallcaps by 48.24 percent to ₹3.26 lakh crore.
“Domestic equity markets witnessed volatility in the past two months primarily because the corporate earnings numbers for the quarter ended Sep 2024 came in lower than expected," Ashwini Kumar of ICRA Analytics, said. "Increase in domestic inflationary pressures and the outcome of the U.S. presidential elections dampened hopes of rate cuts by the U.S. Federal Reserve."
"Moreover, growing uncertainty over global policies, geopolitical issues, and higher valuations have led to volatility in the markets. Largecap and midcap funds are likely to be a big draw among investors in the coming days amid increased volatility in domestic markets following escalating geopolitical risks and global uncertainty,” Kumar added.
Smallcap and midcap funds, which have witnessed a steady surge in AUM, are also likely to hold investor interest in the medium to long term, due to the value created in the entities backed by a robust regulatory framework leading to better corporate governance practices and the government’s firm intent to push for intrinsic growth in the country’s economy, according to Kumar.
There has also been heightened activity in theme-based funds, particularly those relating to infrastructure, healthcare, and IT.
“Investors, particularly in the retail segment, are seeking new growth opportunities and are exploring avenues to generate alpha or higher returns. This explains the heightened activity in sectoral/thematic funds in the last few years. However, such funds are suitable for those investors who understand the dynamics of specific sectors or themes and can accordingly evaluate their growth prospects and risk-taking ability effectively. Investors must stay updated about the latest market trends and economic developments and take well-informed investment decisions,” he pointed out.
Moving forward, “market participants will continue to remain optimistic regarding the growth prospects of the Indian economy, which can be attributed to strong corporate balance sheets and government support. The Indian economy is expected to grow at a steady pace led by corporate capex and a pickup in bank credit. However, an increase in domestic inflationary pressures, uneven and below-average monsoons, volatility in global crude oil prices, tensions in the Middle East, geopolitical tensions between Russia and Ukraine, protectionist measures from the new U.S. administration, and heightened valuations might impact the industry moving forward,” he added.
(By arrangement with livemint.com)
