Debt/liquid flows showed no signs of recovery in Dec, leading to continued funding constraints for NBFCs and HFCs
Mutual fund (MF) flows are normalising after a sharp dip in equity net inflows in Nov-19, with inflows of Rs 51 bn in Dec-19 in pure equities. However, equity flows are still weak compared to the Rs 60-70 bn run-rate in the past 6-12 months, given persistent net outflows from the lumpsum book. The SIP (systematic investment plan) book is still holding up well at 8.9% of AUMs (Rs 85.2 bn in Dec-19) while lumpsum has seen outflows in the past 12 months—Rs 39 bn in Dec-19. Balanced funds continued to see outflows (Rs 12 bn in Dec-19) but normalised to the 12-month run-rate vs Rs 47 bn of outflows in Nov-19. Liquid outflows of Rs 830 bn were seasonal, due to advance tax payment, but much lower than the Rs 1.5 trn run-rate, given the recent corporate tax cut.
Redemptions in equity have inched up in the past 2-3 months with strong market performance netting off an improvement in gross inflow trends—similar to the trends seen in the past. Credit risk funds continued to see outflows, given increased risk aversion. While system liquidity has eased materially, debt/liquid flows are still not normalising, with debt+liquid AUMs down 4% since Aug-18 levels. This is leading to continued funding constraints for Non Banking Financial Companies (NBFCs)/Housing Finance Companies (HFCs)—wholesale NBFCs have seen a 50%+ decline in their funding from MFs and HFCs ex top-2 have seen a 90%+ funding decline from MFs from Aug-18 levels.
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Note: AMFI (The Association of Mutual Funds in India) has changed its data classification and hence comparisons with previous periods (prior to Apr-19) may not be possible.
Equity flows – some normalisation after a weak Nov-19
Equity inflows normalised to Rs 51 bn vs a meagre Rs 3 bn in Nov-19. While net inflows are normalising, they remain weak compared to the Rs 60 bn-70 bn run-rate over the past 6-12 months. Persistent outflows in lumpsum restricted a meaningful recovery in flows despite strong SIP flows of Rs 85.2 bn.
Balanced flows continued to see net outflows but the quantum normalised to the past 12 months’ run-rate of Rs 12 bn vs Rs 47 bn in Nov-19. Arbitrage flows remained volatile with some dip in inflows in Dec-19. ETF (exchange-traded fund) flows were large at Rs 127 bn.
Debt/liquid – seasonal outflows lower but no sign of normalisation
Liquid funds saw net outflows of Rs 830 bn led by advance tax related outflows. While the outflows were seasonal, the quantum was lower vs the Rs 1.5 trn seasonal outflow run-rate, given corporate tax cuts. Debt funds saw inflows of Rs 39 bn.
While liquidity in the system has improved materially over the past few months, MF flows in the non equity segment are still subdued with debt+liquid AUMs declining 4% since Aug-18 levels.
With that, the funding for NBFC/HFCs still remains tough, with funding from MFs for weaker housing finance companies (HFCs) and wholesale NFBCs declining by more than 90%/50% since Aug-18 while the top 2 HFCs and retail NBFCs are still managing funding much better.