Weak Equity Lump Sum Flows, Debt Flows Await Interest Rate Peak: Motilal Oswal

We interacted with a few large mutual fund distributors (having an assets under management in excess of Rs 10 billion) and institutional sales representatives to gauge customer behavior in the current environment. 

Strong recovery in the equity market and expectations of interest rate hikes by the Reserve Bank of India play a meaningful role in gauging customer interest for investing in Mutual Funds.

Over the past couple of months, a few major trends have emerged:

1. resurgence of new fund offers in Q2 FY23 after a hiatus,

2. steady trends in overall AUM,

3. sustained high outflows from the debt segment, and

4. new highs in monthly SIP inflows.

Our interactions with channel partners indicate:

1. Lump sum flows have been under pressure as high net worth individuals await a better entry point.

2. Slight moderation in NFO commission payouts.

3. A slowdown in SIP accounts owing to weakness from smaller ticket rural customers,

4. Growing inclination of HNIs towards long-term debt funds (target maturity funds).

5. As large institutions expect further rate hikes, they are waiting on the sidelines and will commit to substantial long-term debt investments in due course.