‘Not a One-Off Trend': Value Research's Dhirendra Kumar on SIP's Record Flows

In September, investments in Systematic Investment Plans (SIPs) reached a new record high at Rs 16,402 crore, surpassing the previous record of Rs 15,814 crore set just last month, as per the data by the Association of Mutual Funds in India (AMFI). This substantial increase in SIP inflows has captured the interest of investors.

“This is a matter of measurement, the fund company can actually look at the flows and see how much return they have generated. There is nothing more powerful than having more money and a lot of investors experiencing it. The word of mouth is way too strong,” Dhirendra Kumar, founder and CEO of Value Research, an independent investment research firm, told The Core.

Furthermore, Exchange Traded Funds (ETFs) saw a significant rally, with inflows surging from Rs 1,863 crore to Rs 3,243 crore on a month-on-month basis. Contributions to dividend and ELSS (Equity-Linked Savings Scheme) funds also experienced notable increases, reaching Rs 255 crore and Rs 141 crore, respectively. However, corporate bond funds faced outflows, with losses of Rs 2,460 crore and Rs 111 crore, respectively. Midcap and smallcap funds too saw good inflows, although the levels are slightly lower compared to recent months. Moreover, the number of unique investors in mutual funds exceeded 4 crore during the period under review.

To understand more about the record-breaking inflows, previous market trends, and present state of the market, The Core’s founder Govindraj Ethiraj spoke to Dhirendra Kumar, Founder and CEO of Value Research. “I would expect that SIP should always be a record. There will be little more people investing than the previous month and it will be a record, unless there are too many expiries. So there are many reasons for that,” Kumar said. 

On a lot of cash being with asset managers today, the absolute numbers or the fact that they're holding on to so much in relation to where the market is, Kumar said, “It is a problem and that is why they are sitting, they are not finding it attractive to deploy the money.” 

Here are the edited excerpts from the interview

We’ve seen record SIP flows for the last month, which is over 16,000 crores, which is a top a previous record of the previous month. So in a very broad sense, why is this happening?

The very nature of SIP is accumulative. It is not a one-off trend. Ideally, I would expect that SIP should always be a record. There will be little more people investing than the previous month and it will be a record, unless there are too many expiries. So there are many reasons for that. In fact, the mainstreaming of mutual funds, the mainstreaming of mutual fund SIP. And it has been not a disappointing market for anybody who has come in the last four or five years. In fact, mutual fund is the only market-link financial product that has a lot of happy customers. I can't think of anything else which can claim that we have 10 million happy customers, or they have 15 million happy customers. 

This is a matter of measurement, the fund company can actually look at the flows and see how much return they have generated. There is nothing more powerful than having more money and a lot of investors experiencing it. The word of mouth is way too strong.

Looking at the other side of it, this means that there's a lot of money coming in. Rs 250,000 crore, according to some mutual fund asset managers and I'm sure the numbers add up, which is effectively just sloshing around. And we're also at the plateau of sorts right now. So how does that equation square up?

I don't know, it's very difficult to get the market. I think every time somebody has tried to guess it, they get it wrong. In the last 32 years that I've been watching mutual funds, when any fund manager actually goes very strongly about guessing the state of the market, trying to time it, he loses his job before the next cycle. So it gets so embarrassing. I would not like to hazard a guess here but its very straightforward. I found this, it is actually a behavioral thing, when a lot of people earlier, used to invest in a seasonal way.

If you look at the 90s, people invested in Morgan Stanley, people were to invest in Mastergain. The scale of Mastergain 30 years back was something like it raised Rs 4,800 crore or so. And if I adjust it with the level of the sensex that same scale of money will be nearly 1,30,000 crore of NFO money. Of course, the times were different and that was the only way for investors to participate. But no, the point I'm making is that investors used to come in a very ad hoc, seasonal way. Mutual funds turned out to be for initial years turned out to be the only convenient way for individual investors to come to the market. And they used to be closed end funds or even if they used to be open-end funds, it was not the mainstreaming of SIP you know, if you had to do your SIP, you had to cut 12 checks, give post check.It was cumbersome. I think the development of the ecosystem, and the ease of investing happy customers are democratization of the market.

There are many things going for mutual funds. So once the investors are investing through SIP, they are behaving in a very contrarian way. People are doing their Rs 5,0000, 10,000,...SIP and they keep Rs 1 lakh, 2 lakh… handy so that if the market is correct, they will invest like that. So I haven't come across a situation except for 2008, which is now quite some time, many years back when investors went out in the woods. It was very unnerving. The market went down from something like 20,000 levels on the sunset to 8,500 in a very brief period of time. But that also was recovered in the next three years. Of course, it was long, but it was recovered. That was the only phase when I remember investors were taking out money as if the market is going to end, and not collapse.

 

Therefore, you're saying that even if there seems to be a lot of cash with asset managers today, the absolute numbers or the fact that they're holding on to so much in relation to where the market is or its ability to absorb so much is really not in a macro sense a problem because this is something that we've encountered?

No, it is a problem and that is why they are sitting, they are not finding it attractive to deploy the money. And despite the supply, re-rising supply or… I don't think there is a good supply of quality stocks and that is actually translating into, you know, all these BARK stocks and you know, things are buy at any price. And things look — not very comforting— but most of the problems get resolved by, you know, like in a business, if you have a robust revenue, many other small problems get resolved. Likewise, in the stock market, its earnings grow rapidly. It's not growing rapidly, but it's growing reasonably okay. And that earnings itself can justify all this deployment and people can look back at the hindsight and they will regret that they did not invest here. And that is what we have seen in the recent past in the last six quarters. Markets were looking far more expensive than today.

ALSO READ: Communication Breakdown Between Management And Pilots Could Prove Turbulent For India’s Airlines