Quantitative Monographs "Harnessing the growth of India's mutual fund in..."

Research evidence excerpt

Quantitative Monographs "Harnessing the growth of India's mutual fund in..."

Quantitative Monographs UBS Research

Executive Summary

Indian mutual funds have experienced a structural increase in their importance to India's

stock market driven by strong growth, retail disintermediation and the rise of Systematic

Investment Plans (SIPs). In this note, we examine signals derived from the positioning

data of Indian mutual funds. Stocks with high domestic mutual fund active weight

should benefit from manager insights (alpha cloning), as well as industry momentum

(flow).

Figure 2: Indian domestic mutual funds now own 11.3% of Figure 3: Current sector-wise active weight of mutual

the market , growing at a 20% CAGR funds

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estiSource: Factset, UBS Quant Source: Factset, UBS Quant

We believe that such an approach is increasingly relevant given the substantial growth

and rising impact that mutual funds are having on Indian equity markets. Domestic

mutual funds now own around 11.3% of total stock market capitalization, up from

4.3% a decade ago. Assets under management (AUM) have reached US$800 billion,

growing at a ~20% CAGR over the last decade, fuelled primarily by retail flows and the

rise of SIPs. For a deeper dive into India's overall financial and market landscape, please

refer to our initiation note.

Indian equity mutual funds are required to disclose their portfolios at the end of each

month within 10 business days of the following month, making these disclosures

amongst the most timely globally. In this report we analyze two main strategies

leveraging fund active positioning data to take advantage of the rise of domestic mutual

funds: