Equity MFS see first outflows since 2016 as stocks rally
WARY INVESTORS Redemptions rose due to scepticism over recent stock price exuberance
nMUMBAI: Equity mutual funds (MFS) saw a net monthly outflow for the first time in more than four years as investors booked profits after a sharp rally, with some of them ploughing the money back into safer assets such as gold and debt funds, worried about the recent exuberance in stock prices.
July saw a net outflow of ₹2,480.35 crore from equity mutual funds, the first such selloff since March 2016, data released by the Association of Mutual Funds in India (AMFI) on Monday showed. Net inflows into equity schemes have been slowing after a robust ₹11,722.74 crore in March. In June, net inflows were at ₹240.55 crore.
Industry experts attributed the outflows to immediate cash requirements of investors amid falling household incomes because of the pandemic. Many investors are also concerned that the stocks rally is dangerously close to snapping amid a slump in profits and the unacrore bated spread of coronavirus infections in India.
The redemption pressure on mutual funds intensified even as the contribution from systematic investment plans (SIPS) continued to dwindle. Net redemptions in equity mutual fund schemes increased to a fourmonth high at ₹16,622.01 crore in July, rising 23% from ₹13,520.03 crore in June. SIP inflows declined to ₹7,830.66 crore in July from ₹7,927.11 crore in the preceding month.
“The multi-cap fund category was the worst hit, followed by mid-cap and value fund categories. This could be largely attributed to investors booking profits given the surge in the equity markets across market segments,” said Himanshu Srivastava, associate director–manager, Morningstar India.
In July, benchmark indices gained more than 7%, driven by foreign institutional funds buying Indian shares worth $1.15 billion. Domestic institutional investors were net sellers of Indian equities worth ₹10,007.88 in the month.
Analysts said that a spurt in deal activity with a strong pipeline of equity market offerings by many large-cap companies coming up in the next few months may also be the reason for outflows from equity mutual fund schemes in July.
Meanwhile, net inflows into open-ended debt funds rose to ₹91,391.73 crore in July from ₹61,845.54 crore in the year-ago period. It was also substantially higher than the ₹2,861.68 crore in June.
However, June typically witnesses redemptions from banks and corporates on account of the ending of the quarter and advance tax payment obligations.
“July debt fund inflows will be a little distorted by the large investment of a particular corporate group,” said Rajeev Radhakrishnan, head of fixed income at SBI Mutual Fund. Reliance Industries Ltd invested at least $4.7 billion into debt funds after receiving cash from stake sales, Bloomberg reported last month.
nMUMBAI: ICICI Lombard General Insurance Co. Ltd, India’s largest private non-life insurer, is in advanced discussions to acquire Bharti AXA General Insurance Co. Ltd and merge the insurance assets of the two companies, said two people aware of the talks.
Both companies are negotiating the valuation of Bharti AXA, the people said, requesting anonymity.
ICICI Lombard, which has an 8.4% market share and is owned 51.89% by ICICI Bank Ltd, underwrote a gross premium of ₹3,302.19 crore in the June quarter, 5.3% less than the same period last year. This was, however, in line with a weakness in the overall industry. Bharti AXA General, in comparison, recorded a 12% year-on-year drop in gross premium to ₹508.93 crore during the quarter.
The acquisition plans come at a time when the general insurance industry is reeling due to the disruption caused by the Covid-19 pandemic and the economic slowdown.
The existing 25 general insurers (excluding standalone health insurers) saw a 6% drop in premium in the June quarter due to a steep slowdown in sales of nonlife policies in the wake of a prolonged lockdown that led to a temporary halt in most commercial activities.
“The two companies are still in discussion and the plan is that ICICI Lombard will acquire the entire stake of both Bharti Enterprises and AXA. Bharti AXA has a much smaller business, but the two companies are willing for the merger. The pricing has not been finalised yet,” said the first person.
Bharti Enterprises currently owns 51% in Bharti AXA General, while its France-based JV partner AXA has 49%.
To be sure, Bharti Enterprises has been trying to exit its financial services business since long. In 2016, Bharti’s talks with Reliance Industries Ltd to sell its 74% stake at the time in Bharti AXA Life Insurance and Bharti AXA General Insurance were inconclusive.
“There are two more general insurance companies with whom ICICI Lombard is in talks with for similar acquisitions,” said the first person.
According to industry estimates, Bharti AXA has a market value of about ₹2,800 crore. ICICI Lombard is valued at ₹62,827 crore. Emails sent to ICICI Lombard and Bharti Axa General remained unanswered.