In September 2024, the landscape of domestic mutual funds (MFs) underwent significant shifts, driven by a mixture of investor enthusiasm and market volatility. The equity assets under management (AUM), which includes equity-linked savings schemes (ELSS) and index funds, saw a 3.3% month-on-month increase, reaching a substantial ₹33.8 trillion. This growth was buoyed by a 2.3% rise in market indices, particularly the Nifty, along with a 3.7% uptick in equity scheme sales, amounting to ₹838 billion, according to analysis by Motilal Oswal.
Despite this growth in AUM, the mutual fund industry grappled with rising redemptions, which surged by 20.6% month-on-month to ₹474 billion. Consequently, net inflows moderated, dropping 12.3% to ₹364 billion in September, compared to ₹415 billion in August. The total AUM for the mutual fund sector increased slightly by 0.6% month-on-month, hitting ₹67.1 trillion, driven by gains in equity funds (up ₹1,074 billion), balanced funds (up ₹167 billion), and other exchange-traded funds (ETFs) (up ₹159 billion). However, liquid and income funds faced declines of ₹917 billion and ₹124 billion, respectively.
Investor trends: Where money went
Investors exhibited a clear preference for certain sectors, with private banks, metals, retail, automobiles, consumer goods, utilities, and consumer durables seeing increased allocations. In contrast, technology, oil & gas, capital goods, healthcare, and public sector banks (PSU) experienced declines in investor interest.
The rise of private banks
Private banks showed a notable rebound in September, recovering from a near six-year low in weight recorded in August. Their weight in mutual fund portfolios rose to 16.1%, reflecting a 20 basis point increase month-on-month, although it remains down 260 basis points year-on-year. This uptick indicates renewed investor confidence in private banking institutions, which had previously faced scrutiny.
Similarly, the metals sector, which experienced three consecutive months of decline, regained traction, increasing its weight to 2.7%. However, the technology sector faced a downturn, with its weight dropping to 8.8%, down 40 basis points month-on-month and 60 basis points year-on-year. The oil & gas sector also continued its downward trajectory, reaching a nine-month low of 6.2%, marking the sixth consecutive month of decline.
In terms of sectoral dominance, private banks led the way, holding the top position among mutual fund investments in September 2024. They were followed by technology (8.8%), automobiles (8.7%), and capital goods (7.5%). The sectors that witnessed the highest increase in value month-on-month included metals, retail, real estate, consumer durables, and cement.
Key performers: Stocks that stepped up
The mutual fund landscape in September highlighted strong individual stock performances, particularly in the private bank and automobile sectors. HDFC Bank led the charge with a valuation increase of ₹154.3 billion, followed by Mahindra & Mahindra (+₹54.2 billion), Axis Bank (+₹47 billion), Maruti Suzuki (+₹44 billion), ICICI Bank (+₹42.8 billion), and Samvardhana Motherson (+₹39.6 billion).
Moreover, mutual funds exhibited strong ownership in specific sectors compared to the BSE 200 index. Capital goods, healthcare, consumer durables, non-banking financial companies (NBFCs), and chemicals were among the most over-owned sectors, with mutual funds showing at least a 1% higher ownership than the index.
Conversely, sectors such as consumer goods, oil & gas, utilities, private banks, and technology experienced lower mutual fund ownership compared to the BSE 200, indicating a cautious approach toward these sectors.
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The road ahead: Trends in buying and selling
In the Nifty50 space, mutual funds displayed the highest month-on-month net buying in stocks like Trent (+10.6%), Indusind Bank (+7.4%), Eicher Motors (+7.1%), Wipro (+6%), and Grasim Industries (+5.5%). The Nifty Midcap 100 space saw similar trends, with notable net buying observed in Indian Renewable Energy, Hindustan Zinc, Rail Vikas Nigam, Prestige Estates, and Indus Towers.
For the Nifty Smallcap space, the highest month-on-month net buying was recorded in Happiest Minds, IFCI, J&K Bank, Hindustan Copper, and Five-Star Business.
Among the top 25 schemes by AUM, significant month-on-month increases were noted in the Nippon India Growth Fund (+3.3% MoM change in NAV), SBI Bluechip Fund (+3.2% MoM), Axis ELSS Tax Saver Fund (+3.2% MoM), Parag Parikh Flexi Cap Fund (+3.1% MoM), and HDFC Flexi Cap Fund (+2.9% MoM).
As the mutual fund industry continues to navigate a landscape marked by both optimism in certain sectors and caution amid rising redemption pressures, the coming months will be pivotal. The shifts in allocations, especially toward private banks and the response to market dynamics, will serve as a barometer for investor sentiment and market trends moving forward.
