Mutual funds cut equity exposure in August, too

Domestic mutual funds seem to be curbing their exposure to equities as valuations hit new highs amid unprecedented buying spree by foreign funds and moderating domestic inflow.

Local funds have sold equities worth ₹1,642 crore in August, the highest in 17 months, data from Sebi shows. This is the third month in a row when domestic fund deployment shrunk. Monthly inflows had peaked at ₹37,799 crore in May.

The reading of local fund investment includes all equity-related deployment of equity funds, balanced funds, exchange-traded funds (ETFs), and index funds.


The positioning of foreign funds is diametrically opposite. FPI (foreign portfolio investors) have deployed more than ₹50,000 crore in August – the highest in 20 months.

The lack of buying support from the local funds has resulted in a drop in buy-to-sales ratio – a measure of underlying strength of investment – to 0.99 in August compared with a long-term average of 1.22. Gross purchase of local funds dropped to ₹80,241 crore in August, the lowest in 14 months. Gross purchase of local funds has been more than ₹1 lakh crore for 10 months in row between September 2021 and June 2021.

Cumulative rolling 12-month investment of local funds stood at ₹2.21 lakh crore at the end of August. The twin benefit of capital appreciation of market and fund flows helped equity portfolio value of local funds rise to a record ₹21.09 lakh crore in July.

Local funds account for 17.4% of the total institutional equity portfolio value of India, data from NSDL show.

The benchmark indices rose 12% in the last two months, taking the total market capitalisation of the country to just a few percentage points from the record high level achieved in January 2022.

Leave a Reply

Your email address will not be published. Required fields are marked *