Direct equity investors are more opportunistic, fresh first time people who are buying into these markets, says the MD & CEO, Sundaram Mutual Fund.
Are the net inflows and outflows in mutual funds what you expected? How good or bad is it and what do you read from the overall situation?
I have not yet got details of the equity breakup and the SIP numbers but the trend line is that the inflows into the industry need to be fairly stable. The issue is with investors who are exiting. Their redemptions have gone up and that is perfectly understandable because the trend line has been going up and because of lockdowns, people see the need to keep cash handy. That is one.
Second, the existing investors who entered over the last three to four years saw a big erosion in their NAV, after the March shock. This bounce back allowed them to get their NAV back to par level. There is a relief rally profit booking.
Third, the news on the economy. If GDP is down 23%, retail investors will obviously feel that there are some warning signals because of the Covid crisis and the lockdown that caused the economy to plunge. So, they would probably wait and watch and keep their money in liquid assets, cash, and savings accounts for the time being and re-enter the market at an appropriate time. That is the way I read it. It is more of a redemption spike rather than fresh investors coming into the industry.
In terms of mutual fund gross inflows in equities, it should be stable in terms of month-on-month gross inflows. That is what we are seeing at our counter.
We are witnessing increased activity in the direct share market. Not sure if it is the same players that are redeeming their money and perhaps putting it into the retail market or in the direct share market. How are you reading into this phenomenon?
I would not say that. The number of new demat accounts that will be opened is indicative of a fresh set of investors, the millennial crowd, which has lots of time on its hand and a work from home situation which does not have many spending avenues. The cash in hand and the heightened awareness of the digital capabilities and all of that is getting tested in the market. My view is direct equity investments and if you look at the kind of brokers who are getting these kinds of customers are Zerodha, 5paisa.com, ICICI Securities. All have the facility to easily invest and s getting the mutual fund investors with a different bent of mind.
I do not think there is much of a migration of a mutual fund investors chasing direct equity now. A small proportion will be there and that would be in their ETF numbers. If at all some mutual fund customers would have shifted, it will reflect in the beauty of play. Direct equity speaks more of fresh clients who are just looking at it and a lot of recommendations would be from brokers saying these stocks are at 32-week lows, these are at 104-week lows and the kind of action you have seen in the penny stocks is not reflective of typical mutual fund investor.
It is actually people who are seeing an opportunity and grabbing it, who are more opportunistic, fresh first time people who are buying into these markets. That is my reading of the situation.