Monthly inflows from SIP mutual fund schemes have more than doubled over the last two years and reached 7,658 crore Rupees now, in spite of the market correction this year. SIPs have an interesting effect on Sensex and Nifty.
While returns from many equity mutual funds have been poor, the inflows have been fairly strong. The MF inflows have remained to be strong due to the high response from retail mutual fund investors for the SIPs (Systematic Investment Plans).
The surge in MF inflows owing the increasing popularity of SIPs has brought the Indian stock market to have interesting effects on stock valuations.
If the constant inflows through SIP route continue irrespective of the market conditions, the stock prices will get irrational. The constantly increasing inflows of SIP mutual fund schemes have already impacted stock prices and stock valuations in peculiar ways.
As a response to the increasing flows in a valuations-rich market, the Indian mutual fund managers have increased asset allocations to quality stocks, bring about tremendous high valuations in a few selected stocks, said the Head of Research of a Multinational Brokerage.
The broad market indices such as Sensex and Nifty have held firm due to the rally in a few selected stocks that have huge weights in these indices.
In a few cases like Tata Consultancy Services Ltd (TCS), valuations had become very high that mutual fund managers looked for alternatives in the sector.
In many cases, stock prices are increasing due to increased inflows. However, there may not be a proportionate increase in earnings growth to demonstrate the increase in valuations.
SIP inflows provide hope for equity mutual funds even though inflows into the category through equity mutual funds continue to spin according to market conditions, according to LiveMint.
On August 20, 2018, the BSE StAR SIP mutual fund schemes recorded 6,000 registrations in a single day by Arihant Capital, the BSE StAR Mutual fund distributor, according to The Economic Times.[The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views and/or the official policy of the website. ]