Share of local mutual funds in total institutional equity AUM at a record high in January

The share of the domestic mutual funds in the total asset under management (AUM) of institutional investors was at a record high of 18.3% in January 2023, helped by a consistent domestic inflow of funds. According to the data from depositaries, their share increased by nearly 130 basis points year-on-year, the highest among all investor categories. It is now the second highest after the share of foreign portfolio investors (FPIs) at 37.2%.

The equity AUM of local mutual funds includes all equity exposure from equity funds to balanced funds. It rose by 13% to Rs 22.6 lakh crore in January from the year ago. The total institutional investors’ AUM that includes foreign portfolio investors (FPI), alternative investment funds, insurance companies, and local pension funds in addition to domestic funds increased by 5% to Rs 123 lakh crore. Institutional investors account for nearly half of India’s total market cap of $3.1 trillion.

According to the SEBI data, the total 12 month rolling investment by local funds reached nearly Rs 2 lakh crore in January. FPIs on the other hand sold Rs 1.2 lakh crore of Indian equities. Barring August 2022, local funds have been net buyers in equities on a monthly basis in the past two years with an average inflow of Rs 14,280 crore per month.

The dual impact of inflows in local funds and outflows in overseas funds expanded the ratio between AUMs of the local mutual fund and FPIs to a record 49% in January compared with 41% a year ago.

The growing size of the local mutual funds has limited the downside in Indian equities at a time when FPIs are pulling out funds from India as they are pruning exposure to emerging markets on account uncertainty about terminal interest rates in the current rising interest rate cycle and a high P/E premium of India compared with other developing nations.