First Time In 5 Years, ETF Net Inflow At Rs 66,440 crore Exceed Equity Inflow

April 22, Mumbai: For asset managers, Financial Year (FY) 2020 has been a difficult year on the back of the decline in equity flows by 50.9 per cent year-on-year (Y-o-Y). Further the rise in the commissions as well as the performance deteriorated as listed Asset Management Companies (AMCs) outperforming Asset Under Management (AUMs) started declining. As per Kotak Securities Sector Update Report, for the first time in the last 5 years, ETF net inflows at Rs. 66,440 crore exceeded the equity inflows.  “We believe that this is significant as any sustained shift towards ETFs (unlikely for now!) will have an adverse impact on the business model of asset managers. Given tepid market conditions, FY20 equity (ex. arb. and ETF) inflows at Rs. 58,290 crore were down 50.9 per cent YoY. We expect flows and equity market sentiment to improve only in 2HFY21,” says Madhukar Ladha, Institutional Research Analyst, HDFC securities.

The value research indicates that with 94.5 per cent of rated AUM in outperforming schemes (4-star plus rated), Motilal Oswal AMC ranks the highest amongst the large mutual funds in the country. On the flipside, the performance has lagged for HDFC AMC and Nippon Life India Asset Management as underperforming (1 to 3 star rated schemes) that comprise of 87.8 per cent and 77.6 per cent of the respective rated AUMs. 

When it comes to the debt funds, the brokerage believes that amid the crisis and series of defaults, investors are flocking towards high quality fixed income assets and most of the inflows are in banking and PSU debt funds and low duration funds.  “We have also worked out sensitivity of FY21E earnings to equity AAUMs and yields. While we continue to hold our constructive view on the sector, we believe flows to mutual funds may improve only in 2HFY21 and earnings will remain under pressure in FY21E (estimates),” says Ladha.