The Indian Stock Market along with other emerging markets has been extremely volatile since the start of this year. This is owing to the hints from the Federal Reserve to hike Interest Rates, the Ukraine-Russia War, increased inflation, weakening of the Indian Rupee against the US dollar, and Covid-19 linked lockdowns in China, among others.
Owing to this, in May 2022, foreign portfolio investors(FPIs) sold out on Rs 45,276 crore of their investments, the second biggest single-month outflow since March 2020 when it was Rs 62,000 crore. The below tagline sums it up pretty aptly.
The saving grace in all this has been that strong buying from domestic mutual funds and retail investors has provided a cushion for absorbing the significant foreign investors-led selling in the market, analysts said. Domestic mutual funds have net bought local stocks worth Rs 92,580 crore in 2022.
The graph below shows the outflow of money from the Indian Stock Market in the past 3years with the uninterrupted outflow beginning in September 2021.
With this background, let us come to the question
Should One Liquidate Mutual Funds or Wait?
Owing to the outflow of money from the Indian Stock Market, the Mutual Funds which have holdings in equities have also seen a decline. The decline can be summed up as follows
- Small Cap Mutual Funds have seen a decline of ~10%
- Mid Cap Equity Mutual Funds have seen a decline of ~7–8%
- Large Cap Equity Mutual Funds have seen a decline of ~5%
This is important to note as, during the bull-run or bear-run, small-caps are the ones that are actively traded. Owing to this, Investors tend to make or lose money accordingly.
With this decline, Investors can choose to stick to their SIPs, put in more money, or stay put.
Why do I say so?
In the recently released GDP Numbers, India’s gross domestic product (GDP) for the financial year 2021–22 expanded by 8.7%, highest in 22years. This makes India the faster-growing economy in the world.
Along with this, India is set to have a normal monsoon, low-internal disruptions linked to manufacturing or services, higher consumption especially linked to auto & real estate, return in travel and discretionary spending, etc. This is set to give a fillip to the growth of stocks listed on the exchanges and thereby to the Net Asset Value (NAV) of the Mutual Fund.
There are risks linked to the realization like
- High Inflation
- High Commodity Prices (like Crude Oil, Metals, Etc.)
- Instability extended to other parts of Europe after Ukraine
- Slowing of Semiconductor Supply (crucial for electronics, automobiles, white goods, etc.)
This though will impact any country in any part of the world. Owing to this, it is best to stay invested or pile on in your mutual fund portfolio as the future for the Indian Economy and hence the Stock Market is bright.
Also, adding some more posts linked to this, that you can utilize to make your investment analysis
- What are the best equity funds to invest in for the short-term and long-term in June 2022?
- What are some good-quality stocks that I can blindly accumulate during a market correction in 2022?
- What are the best equity funds to invest in for the short-term and long-term in June 2022?
Hope this helps
You can follow my blog or Facebook page on investing for getting insight into other stocks.
Happy Investing!!
References:
- May sees second biggest FPI outflows from the Indian stock market
- Market volatility: Should you exit or stick to your equity scheme? (Market volatility: Should you exit or stick to your equity scheme?
- Indian equities raise nearly Rs 2.5 lakh crore from FPIs in 7 years, lose it all in 8 months
- GDP grows 8.7% in FY22: Highest in 22 years – Times of India
- India’s GDP growth: The devil is in the details
Lateral Thinking 