India Stock Funds Face First Monthly Withdrawals in Four Years

Equity mutual funds in India may witness their first monthly net outflows in more than four years as investors continue to cash out to tide over the pandemic-related credit crunch, while others hold off adding more in a rising stock market.

Net withdrawals from stock plans may top 10 billion rupees ($134 million) in July, said Nilesh Shah, managing director of Kotak Mahindra Asset Management Co. and chairman of the Association of Mutual Funds in India. That would be the first net outflow since March 2016. AMFI data for July is due early next month.

“Some are redeeming to book profits after the rebound and others are selling to meet the cash crunch in their businesses in the absence of bank finance,” Shah said. “Gross flows to equity funds are holding up but there’s no let-up in redemptions. There will be net outflow for July as things stand today.”

The contraction in fund flows are a cautionary tale for India’s $1.9 trillion stock market that’s looked past some dire economic projections and climbing virus numbers to jump more than 40% from its March low. Local money managers softened the blow by buying at the depths of the swoon even as foreigners pulled a record $8.4 billion. If the likely outflows in July marks the start of a trend, funds won’t have the same firepower the next time risk appetites dries up.

“Since markets have continued to rise this month, I think redemptions will go up,” said Sunil Subramaniam, managing director at Chennai-based Sundaram Asset Management Co. “Some investors are redeeming out of relief as this rally takes more and more of the deep underwater assets back to par value.”

With gains of about 9% so far in July, the Sensex is set for a second monthly advance, thanks to flows from overseas funds and participation by a growing contingent of amateur investors. But mutual fund investors aren’t sharing this exuberance.

READ: Flows to India Stock Funds Tumble as Furious Rally Spurs Caution

June redemptions in equity plans almost doubled to 135.2 billion rupees from May, data from AMFI show.

“Investors need money during these uncertain times and they would rather book profits when the going is still good,” said Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in.

— With assistance by Nupur Acharya

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