After receding for a while, the bullish sentiment on the Dalal Street has emerged even stronger. Recently the Nifty and Sensex, India’s two widely tracked equity indices reached their highest level in the calendar year 2016. This happened on the backdrop of a dismal start to the year. China posed serious threats to global growth, and there was almost a consensus on Federal Reserve (Fed) raising interest rates in the U.S. Speaking about India, there were a few negative developments too. Despite making several attempts, the Government had failed in passing the GST Bill through Rajya Sabha in the winter as well as the budget session. Earnings growth wasn’t encouraging either. The rupee had started declining against US$ due to changing global economic conditions.

However, after that sentiment improved as the anticipated threats never materialised. China has somehow managed to keep itself afloat, and Brexit has made Fed think again about raising interest rates despite witnessing improvements in the domestic economy. In India, things have changed for better. The Monsoon has been good and is projected to be even better in the coming months. A good monsoon is a prerequisite in India for clocking higher economic growth. Companies in India have had a better Q4 in the Financial Year (FY) 2015-16. There's a likelihood that the GST Bill will be passed in the Monsoon session. This has given hope to domestic as well as global investors. As per the NSDL data, flow of foreign capital have been positive in India, February onwards.

  Are mutual fund investors following the market momentum?

(Data Source: AMFI, PersonalFN Research)  

It seems domestic retail mutual fund investors have been getting carried away by this momentum. With the improvement in the market's performance, their participation in equity oriented mutual funds has kept climbing too over last 4-5 months. But the most worrying part is when the market shows some signs of correction, investors reduce their exposure to equity mutual funds which is why their monthly net investments in February and March were lower than those recorded in April and May. As the markets showed a strong movement this summer, domestic investors strongly came back to markets.

Although the growth in equity Assets under Management (AUM) of mutual funds is good for the future of the industry, what’s not acceptable is, the trading-oriented approach of investors. Retail investors would be better off if they stop aping Foreign Institutional Investors (FIIs) investing in India. Their objectives are different, so as their approach to investing in India stock markets.

Indian investors should think first about their financial goals and the risk appetite. How much to invest in an equity-oriented fund can be decided on these two factors. You should also take into account your current financial position before committing money to equity-oriented schemes. PersonalFN is of the view that, investors should pick up mutual fund schemes carefully and after assessing all available options. Those performing consistently across all timeframes and market phases are the most suitable ones. Moreover, to deal effectively with the market volatility, you should opt for the Systematic Investment Plans (SIPs) that mutual funds offer almost in every scheme.

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