Fund investors keep faith despite rout

Investors in equity mutual funds bought more last month, unfazed by the sell-off that saw the nation’s $1.9-trillion market log its worst July in 17 years.

Stock plans received ~81.1 billion ($1.2 billion), according to the Association of Mutual Funds in India (Amfi). That’s an increase from ~76.6 billion that the funds got in June and the highest in four months.

Indian stocks entered a correction this week as the lack of measures in the July budget to stimulate the economy and a tax on the super rich soured the mood. Local fund managers bought the dip, plowing a net $2 billion last month, helping negate sales of a similar magnitude by foreigners.

“The mutual fund industry is holding on,” N S Venkatesh, chief executive officer at the Association of Mutual Funds in India, said on a conference call. “We saw inflows despite a difficult month, a sign of investors becoming more mature and holding their investments.”

The ground realities — slowdown in the economy and the lingering stress in the nation’s credit markets — have long replaced the euphoria following Prime Minister Narendra Modi’s comfortable electoral win. Yet, monthly flows to stock funds from retail investors totalled ~83 billion in July, up from ~81 billion in June, Venkatesh said.

Contributions from savers who put in sums regularly, aiming to smooth out volatility through averaging, have soared from about 12 billion rupees in 2014 and helped cushion the market against global shocks. The flows will persist as equities remain an “attractive option” amid expectations of a further reduction in bank deposit rates, Venkatesh said.