Fund inflows in equities at 13-month low in March

Institutional investors looking to exit funds to avoid the LTCG tax by selling before March 31 contributed to the reduced inflows.

business Updated: Apr 09, 2018 12:35 IST
Indian equities,LTCG tax,fund inflows
The S&P BSE Sensex gauge entered its first correction in more than 15 months as the sell-off hit investor sentiment already weakened by the government’s decision to bring back the Long Term Capital Gains (LTCG) tax after 14 years to boost revenue.(Dhiraj Singh/Bloomberg)

Inflows into Indian equity funds in March were the smallest in 13 months as some investors sold before a tax on stock holdings took effect from April 1 and volatility returned to markets worldwide.

Equity funds took in a net Rs 66.57 billion ($1 billion), the least since last February, data from the Association of Mutual Funds in India shows.

Shares tumbled globally toward end of March as trade skirmishes between the US and China cooled demand for riskier assets. The S&P BSE Sensex gauge entered its first correction in more than 15 months as the sell-off hit investor sentiment already weakened by the government’s decision to bring back the Long Term Capital Gains (LTCG) tax after 14 years to boost revenue.

“Global volatility spooked some investors into redeeming funds as our market fell 10% in little over a month from its January high,” said Vidya Bala, head of research at FundsIndia. Exits by institutional investors looking to avoid the tax by selling before March 31 contributed to the reduced inflows, she said.

Even so, flows should recover in the coming months as AMFI data suggests that mom-and-pop investors are buying the dip. Equity funds posted total sales of Rs 436.4 billion last month, compared with Rs 346.41 billion in February, the data shows.

“Inflows into equity funds at a gross level in March have been higher than those in February, which means retail are buying on declines,” Bala said.

There was concern that a move to end the tax break on equities would affect flows from individual investors, who’ve flocked to funds since Prime Minister Narendra Modi took office in 2014. Continued local flows support of $2 to $2.5 billion a month is needed to support the equity paper supply expected in the year that began April 1, CLSA India Pvt. said in a note.

First Published: Apr 09, 2018 12:35 IST