Mutual funds' share in institutional equity assets touches new record

ET Intelligence Group: As valuation of benchmark indices gravitated towards long-term average, local funds raised their wager on equities taking their share in the institutional equity AUM to a record high level.

Local mutual funds' investment in equities through the secondary market rose to ₹20,764 crore in March 2023 - the highest in nine months, data from Sebi show.

Domestic investors have been buyers of equities for the seventh month in a row. The Nifty 50 valuation dropped to 17.3 times of its one-year forward earnings in mid-March, which is in line with the 10-year average. This was the second time since Covid-19 struck in 2020 when the Nifty 50 index dropped to its long-term average level.

The underlying buying strength can be gauged from the fact that gross purchase of mutual funds remained more than ₹1 lakh crore for the fourth month in a row, taking the gross buy-to-sell ratio - a measure of buying momentum of institutional investor - to 1.25 in March 2023, compared with the long-term average of 1.07.

Secondary market investment of domestic funds captures all flows of MF related to equity exposure that includes pure equity, balance funds, ETFs and ELSS fund category.

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With investment of nearly ₹1.83 lakh crore cumulatively in the last 12 months, mutual funds' contribution to the total institutional equity AUM rose to a record high of 18.60% in March 2023 compared with 17.35% a year ago. This accounted for 125 basis points on YoY basis - the highest among all institutional investors.

Total equity AUM of MFs stood at ₹22.63 lakh crore at the end of March 2023, while total institutional equity AUM was ₹121 lakh crore, that is nearly half of India's market capitalisation. MFs' AUM has grown year on for 27 months in row at an average of 34.4%.