Inflow Slowdown Hits Large, Mid, and Smallcap Funds in December: Is Investor Sentiment Cooling?
December witnessed a notable slowdown in equity mutual fund inflows as investors became increasingly selective amidst concerns about valuations and ongoing market volatility. Although the market experienced only a mild decline of up to 1%, monthly inflows into large, mid, and smallcap mutual funds dropped by as much as 13%. This shift suggests investors are adopting a more disciplined investment strategy, balancing return expectations with valuation comfort.
Key Highlights of December’s Mutual Fund Inflows
– Overall Performance:
– Largecap funds saw a 4% decrease in inflows, down to ₹1,567 crore from ₹1,639 crore in November.
– Midcap funds’ inflows dipped 7%, totaling ₹4,175 crore compared to ₹4,486 crore the previous month.
– The most significant decline occurred in smallcap funds, which experienced a 13% drop, receiving ₹3,823 crore versus ₹4,406 crore in November.
– Market Volatility:
– The BSE Sensex decreased by 0.49%, while the Nifty50 closed down by 0.17%.
– Nifty Midcap 150 TRI and Nifty Smallcap 250 TRI fell by 0.42% and 0.50%, respectively, indicating a broader market trend of caution.
Himanshu Srivastava from Morningstar Investment Research India highlighted that the moderation in inflows could be linked to weaker momentum in both the midcap and smallcap categories, especially after significant valuation increases and periodic market corrections.
Changing Investor Behavior
– Profit Booking:
– With continuing market volatility, investors seized opportunities to book profits as they arose, indicating a shift in sentiment towards more cautious investment strategies.
– Performance of Funds:
– Largecap funds experienced an average negative return of 0.38% in December, with Samco Large Cap Fund plunging by approximately 1.67%. In contrast, HSBC Large Cap Fund managed to deliver a modest positive return of 0.55%.
– Midcap funds averaged a negative return of 1.06%, with notable performances including Motilal Oswal Midcap Fund, which fell by around 4.44%, and ITI Mid Cap Fund, which posted a positive return of 1.09%.
– Small-cap funds recorded an average loss of 1.52%, with JM Small Cap Fund declining by about 4.20%, whereas Edelweiss Small Cap Fund fared better with only a 0.10% decline.
Strategic Shifts: Preference for Flexi-Cap Funds
Suranjana Borthakur from Mirae Asset Investment Managers noted that due to relatively high valuations and inconsistent market performance in the mid and smallcap segments, many investors are now gravitating towards flexi-cap funds as a safer alternative. Only one smallcap fund was launched in December—Samco Small Cap Fund—raising ₹131 crore during its New Fund Offer (NFO).
Conclusion
As the data shows, the slowdown in inflows into large, mid, and smallcap funds in December reflects a cooling of investor sentiment, influenced by valuation concerns and ongoing market volatility. Investors now appear to be more selective, signaling a potential shift in investment strategies. With flexi-cap funds gaining traction, this period may mark a pivotal transformation in how investors approach mutual funds in a fluctuating market environment.
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