Can Mutual Funds stop the bear run?

The last 6 months have been really troubling for stock market all over the world. While Dow reached it 2 years low, Nifty dipped below its sentimental level of 4000. In such a volatile market investments made for short term made people lose drastically. The recent dip of NIFTY index from 6280 to 3800 made even the value investor worried.

Looking at the major inflow in the market, we see that two major players – Domestic mutual fund (DMF) and Foreign Institutional investors (FII); behaved differently in the market. While FII pulled out money amounting around 25000 Crore, mutual funds cumulatively invested 9000 Crore in the market. More over the pattern shown in the diagram above explains that; at every fall FII were the one who pulled out money while in most of the dips, mutual funds invested in equity. With more than 600 stocks trading at below its’ 52 weeks lows, fund managers find it quite attractive to take position while FII who are there in market for short term took their money out in panic. As discussed in the previous posts, the compounded annual return is more than 30% for NIFTY index; hence such unexpected fall should be taken as an opportunity by both mutual funds and retail investors to invest rather than to stay away from the market. Staying invested for medium to long term will certainly be rewarding.

Looking at the major players in the market, the question arises about the driving players in the market at present? Is it the FIIs who are running away from the market or the Mutual funds who are investing quite cautiously? FIIs’ pull-out of 25000 crore has been really a reason to worry. This exit has been the major factor of indices taking a dip, but with more than 20,000 crore fund and cash equivalent uninvested, asset management companies (AMCs) have the potential to change the sentiments and encourage people for value investing. Surprisingly this time, the retail investors in Mutual funds have not rushed to redeem the allocated units hence fund managers have more flexibility to move their investment into blue chips which are available at quite a reasonable price.