After SEBI's cautious remark, small-cap funds show an outflow in March after 30 months

NEW DELHI: The latest data released by the Association of Mutual Funds in India (AMFI) signals a notable shift in mutual fund inflows during March 2024, reflecting investor sentiments amidst regulatory warnings.

According to AMFI's recent figures, there has been a significant change in investment patterns, particularly in the small and mid-cap segments of the market. The data reveals a net outflow of Rs. 94.17 crore from small-cap funds, indicating a cautious approach among investors towards this category. In contrast, large funds witnessed an inflow, amounting to Rs. 2127.79 crore and the mid-cap funds received inflow of Rs 1017.79 crore during the same period.

This shift in mutual fund inflows coincides with earlier cautionary remarks made by Madhabi Puri Buch, chairperson, Securities and Exchange Board of India (SEBI) last month.

Buch raised concerns regarding the overvaluation of small and mid-cap stocks, highlighting potential risks of market manipulation and the formation of a market bubble.

Meanwhile, inflows in equity funds which have remained in the positive territory for 37 months have witnessed some interesting trends. Sequentially they declined by 15.8 per cent while increasing by 10.2 per cent on a yearly basis.

The large-cap funds inflows saw a significant boost. However small-cap funds witnessed outflows after 30 months since some of the mutual funds put in restrictions to limit fresh inflows into those funds as well due to market concerns.

"The Rs 53.4 lakh crore Mutual Fund industry witnessed outflows of nearly Rs 1.6 lakh crores led by the debt funds which witnessed outflows of over Rs 1.98 lakh crore. The liquid funds outflows of nearly Rs 1.57 lakh crore, albeit on the higher side compared to December 2022 as well as March 2023 are a regular quarterly pattern of liquidity management by corporates" said Sanjay Agarwal, Senior Director, CareEdge Ratings.

He further added that "Interestingly in March 2024, practically all debt categories excluding Long Duration funds, and Banking and PSU funds have witnessed outflows which could be attributed to strained liquidity. The Credit Risk category continued to witness 12th straight month of outflows".

According to the experts the regulatory alert from SEBI appears to have influenced investor behavior, prompting a reevaluation of investment strategies and risk appetites. The caution surrounding small and mid-cap valuations has led investors to reallocate funds towards larger and relatively more stable segments of the market, as reflected in the significant inflows into large and mid-cap funds.

The shift in mutual fund inflows underscores investors' responsiveness to regulatory cues and market conditions, as they seek to navigate potential risks and capitalize on emerging opportunities.