Equity MF in 2020

‘All's well that ends well’ fits perfectly for the equity market year 2020. The frontline equity indices ended with gains of 15 per cent on a yearly basis.  

Taking into consideration the situation of the economy & stock market after the COVID-19 pandemic-led shut down of the economy, such a gain was not imaginable till a few months back. Every month of the last quarter of 2020 saw an MoM rise in the equity market.   

The index witnessed a rally of 24 per cent in the last three months of the year. What led to such a rise were strong FII inflows and good corporate earnings in the second quarter of FY21. Against the street expectation of Rs 75 thousand crore of profit by Nifty 50 companies, they posted a profit of more than Rs 1 lakh crore. While FIIs inflows were at record highs, outflows by DIIs saw fresh highs too. This was on the back of profit booking by many investors as well as rebalancing that needs to be done by balanced advantage funds of mutual funds. Since the asset allocation of the hybrid funds depends upon the equity market valuation, higher valuation recently has prompted these funds to book profit from equity and deploy it to debt.  

Equity AUM  

The year ended with an equity AUM of Rs 9.5 lakh crore. This is the seventh consecutive year in which the equity AUM has increased. The equity AUM increased from the lows of Rs 1.8 lakh crore in the year 2013 to Rs 9.5 lakh crore in the year 2020. The last year’s increase in equity AUM was led by a rise in the market indices (Nifty is up by 15.4 per cent YoY) and a marginal increase in equity scheme sales (up by 2 per cent YoY to Rs 2.3 lakh crore). Further, redemptions increased 49 per cent YoY to Rs 2.26 lakh crore, leading to a decline in net inflows to Rs 6,400 crore in CY20 from Rs 76,800 crore in CY19. Such lower net inflows led to the contribution of equities to MF total inflows at a seven-year low. It has dropped from 83 per cent in the year 2018 to 4 per cent in 2020. 

When it comes to the sector and stock allocation, there has been a notable change. The weight of the defensive sector increased by 650 basis points to 33.9 per cent due to an increase in the weight of technology, healthcare & telecom sectors. Domestic cyclicals’ weight decreased 540 bp to 56.6 per cent, led by BFSI, capital goods, media & infra. Global cyclicals’ weight too decreased 110 bp to 9.5 per cent.