The equity market rally thus far this financial year (H1FY18) in the absence of a meaningful pick-up in earnings has been fuelled by the gush of liquidity, especially by the mutual funds, which have invested around Rs 70,500 crore during this period. This is five times higher than what they had invested in the corresponding period last fiscal.
While most of this money has found its way into the mid-and the small-cap segments of the market, analysts have now started to worry about how long can this flow continue in the absence of a pick-up in corporate earnings and a healthy growth in the economic activity. The recent deluge of net equity MF flows appears to be an outcome of a self-fulfilling virtuous cycle between inflating valuations and retail flows, they say.
Average monthly flows into equity MFs turned positive from May’14 – says an Emkay Global report co-authored by Dhananjay Sinha, Head of institutional research, economist and strategist at Emkay Global Financial Services along with Kruti Shah – averaging around Rs 5,500 crore and surged further post demonetisation to over Rs 10,000 crore.
