The mutual fund industry in India witnessed significant growth and notable shifts in investor behaviour during January 2024. Amidst robust inflows and evolving preferences, key trends emerged, shedding light on the changing landscape of investment preferences and market dynamics.

1. Inflows and Asset Growth

In January 2024, the inflows into equity mutual funds surged to a 22-month high, reaching ₹21,780.56 crore, marking a 28% sequential increase. This uptick was driven by sustained investments across sectoral, small- and mid-cap funds and a notable performance by large-cap funds, which experienced their highest inflows in 18 months. Additionally, debt funds saw a revival after two consecutive months of outflows, securing ₹76,469 crore.

The industry’s assets under management (AUM) reached an impressive ₹52.74 trillion, up from ₹50.77 trillion in December 2023, showcasing robust appeal and resilience. This trend has persisted, with January marking the 35th consecutive month of inflows.

2. AUM Composition and Shifts

A closer look at the composition of AUM reveals notable shifts in investor preferences. Active equity and liquid funds gained market share over December 2023, while active debt and passive funds experienced a slight decline. This can be attributed to the sharp appreciation in equity funds and robust inflows, offsetting the flows into debt funds. The interest in debt funds was further impacted by unfavourable tax treatment as per the Union Budget 2023-24 modifications.

Furthermore, the share of individual investors in the overall AUM composition has increased by 280 basis points, reaching 60.10%, primarily driven by a surge in SIP flows, particularly from Gen-Z and millennial investors. This reflects a growing retail appetite for equity funds.

3. SIP Numbers

Systematic Investment Plan (SIP) inflows surged to a record high of ₹18,838 crores, marking the seventh consecutive month with inflows surpassing ₹15,000 crores and the twenty-ninth successive month with inflows exceeding ₹10,000 crores. This robust performance underscores the sustained confidence of investors in systematic investment plans, reflecting a consistent trend of substantial inflows into the market.

Moreover, January 2024 witnessed a remarkable surge in new SIP registrations, reaching a record-breaking 51.8 lakhs, marking an impressive 47% increase from the three-month average. Conversely, SIP discontinuations totalled 23.8 lakhs, soaring 29.6% from the three-month average. This resulted in a staggering net SIP addition of 28.1 lakhs, setting an all-time high and surging by an exceptional 65.9% from the three-month average, underscoring the growing traction and investor confidence in SIPs.

The remarkable surge in SIP inflows and a significant increase in new SIP registrations highlights the enduring appeal of disciplined and systematic investing among Indian investors. This consistent trend not only reflects investor confidence but also bodes well for the long-term growth and stability of the mutual fund industry in India.

4. Investor Allocation and Preferences

Individual investors are strongly inclined toward equity funds, holding an imposing 88% share of equity fund AUM. However, their allocation to passive funds remains relatively low at just 10%, indicating a preference for actively managed funds. On the other hand, institutional investors and corporates have a higher share of their corpus in liquid funds and ETFs/FOFs, reflecting a more diversified investment approach.

5. Growth Dynamics

Overall, assets of mutual funds in India grew by 29.62% year-on-year. Notably, the holdings of individual investors witnessed robust growth, outpacing institutional investors with a growth rate of 35.92%, highlighting the increasing role of retail investors in driving industry growth.

 Conclusion

The mutual fund industry in India experienced a dynamic month in January 2024, characterized by robust inflows, shifting AUM composition, and evolving investor preferences. Despite concerns over valuation and tax implications, equity funds continued to attract significant investments, fueled by growing retail participation and sustained interest in sectoral and mid-cap funds. Understanding these trends will be crucial for investors and fund managers to navigate the changing landscape as the industry continues to evolve.

Market this week

• Bulls dominated Dalal Street, pushing benchmark indices higher by 1 percent each, with the Nifty comfortably closing above 22,000 despite starting on a weaker note.
• Foreign institutional investors (FIIs) sold equities worth Rs 6,237.55 crore, while Domestic institutional investors (DIIs) bought equities worth Rs 8,731.60 crore during the week.
• FIIs offloaded equities worth Rs 5,871.45 crore in the week ending February 9.
• The Indian market rebounded from previous week losses, gaining over a percent, supported by sectors such as auto, oil & gas, and banking.
• Positive global market cues, favorable domestic inflation data, and the final leg of quarterly earnings from Indian companies contributed to the market’s upward momentum.

Weekly Leaderboard

Stocks that made the news this week:

• The Government of Singapore made a significant acquisition of 31,47,725 shares of Data Patterns (India) at an average price of Rs 1,837, totaling a transaction value of Rs 578.23 crore. This acquisition represented a 5.62 percent stake in the company. Additionally, Kotak Mahindra Mutual Fund and Mirae Asset Mutual Fund also participated as bulk buyers, purchasing 4,55,000 shares and 7,10,310 shares, respectively, at the same price. Kotak Mahindra MF acquired a 0.81 percent stake, while Mirae Asset MF acquired a 1.27 percent stake in Data Patterns (India), as per exchange data.

• Pharmaceutical stocks surged driven by strong Q3 results and positive outlook. Natco Pharma, Glenmark, and Aurobindo Pharma witnessed notable gains, with intraday increases of 14%, 10%, and 2%, respectively. The Nifty Pharma index also rose nearly 2%. Natco Pharma achieved a 52-week high following a three-fold rise in net profit to Rs 212.7 crore, supported by a robust revenue increase of 54% year-on-year to Rs 758.6 crore in the December quarter.

• Happy Forgings witnessed a 3 percent jump in trade on February 16 following the announcement of securing an order from a leading Indian automaker, the name of which remains undisclosed. The order, valued at Rs 60-70 crore annually and totaling Rs 400 crore over six years starting April 1, entails the manufacturing and supply of fully machined components for the SUV segment. In an exchange filing, the company expressed its aim to diversify its sectoral revenue mix both domestically and in the export market with this significant order, marking its entry into the passenger vehicles segment.