Homegrown MFs pip foreign funds to bag top slots in India

Large homegrown mutual funds have pipped some longtime foreign funds as the top institutional investors in the Indian stock market. Out of the top five institutional investors in local equities excluding LIC, four are domestic asset managers, which have benefitted from the shift in savings from real estate and gold to equities in the last four years.

The pecking order of top institutional investors in domestic stocks looked different four years ago. In 2015, top five institutional investors’ list of India comprised two large foreign portfolio investors (FPIs) – Capital Group and Government of Singapore. Now, only Capital Group is in the top five at the fourth position. Domestic mutual funds such as SBI, HDFC, ICICI Prudential and Reliance Nippon are the others in the list. The data exclude investments held by state-owned Life Insurance Corporation (LIC), which has been the biggest institutional investor in Indian stocks.


“Slowdown in asset class such as gold and real estate has driven domestic investors towards financial savings in the last five years. Many investors rode equities using mutual fund as an investment vehicle,” said Swarup Mohanty, chief executive officer, Mirae Asset Management.

SBI Mutual Fund, with an equity AUM of Rs 29,911 crore in 2015 was the fourth largest MF in the country and was roughly half the size of Capital Group – India’s largest FPI. Today, SBI MF with a large chunk coming from Employee Provident Fund Organisation (EPFO) has emerged as the largest institutional investor of the country in equities. With an equity Assets Under Management (AUM) of Rs 1.4 lakh crore, SBI MF today is 50 per cent bigger than Capital Group. Back in 2015, HDFC MF and Capital Group were roughly same sized but now HDFC MF manages 30 per cent more assets than Capital Group, data showed.

Aditya Birla MF and Government of Singapore were roughly managing the same amount of money in 2015. Today, there is nearly 30 per cent gap between the AUMs of the two institutions since Birla MF’s assets grew 156 per cent against 65 per cent rise in the assets of Government of Singapore.

While FPIs’ assets grew 50-60 per cent in the last four years, top mutual funds’ investment corpuses more than doubled in the period. The rising stock market helped assets of both foreign and domestic institutions grow in this period, but local funds had an edge because of the continuous retail investor flows into their equity schemes through systematic investment plans (SIPs).

“With the industry stressing on SIP as a mode of investment, many investors were able to participate which lead to the growth of the Indian equity mutual fund industry,” said Mohanty Investment mandates of foreign portfolio investors are different compared to the domestic mutual funds. While FPIs’ investment calls are based on regions like Asia and emerging markets and not just India, domestic mutual funds’ focus is domestic equities. The appetite for risker EM assets has stagnated in the last five years, capping the growth of top FPIs. MFs, on the other side, have aggressively invested money in the markets due to events like demonetisation, financialisation of savings and poor returns from competing asset class.

“With political stability post 2014, investors became more confident of equity as an asset class,” said A Balasubramanian, chief executive officer at Aditya Birla Sun Life Mutual Fund.

The growing dominance of mutual funds has helped avert sharp falls in Indian stock indices. In 2018, FPIs pulled out Rs 33,000 crore from equities. Despite this, the benchmark Sensex has registered a 6 per cent rally during the year, thanks to the support from MF inflows. In contrast, FPIs’ net selling of shares worth Rs 3,000 crore in 2011 (with August 2011 alone seeing outflow to a tune of Rs 10,800 crore) sent the benchmark Sensex declining 24 per cent during the year. In 2008, FPIs had pulled out Rs 53,000 crore from Indian equities in the aftermath of the Lehman Crisis, leading to a 50 per cent fall in the Sensex.