With a month to go before the Narendra Modi government completes three years at the Centre, the benchmark Sensex at Bombay Stock Exchange closed above the 30,000 mark for the first time ever. Mutual fund inflows and FPI (Foreign Portfolio Investor) fund flow data over the last three years shows that the rally this time is more Made in India as retail investors uprooted foreign portfolio investors to emerge as the biggest participant and, thereby, the beneficiary of the surge in Indian equities.
While it took over nine years for Sensex to move from 20,000 (in December 2007) to close above 30,000 on Wednesday, a large part of this movement came after BJP-led NDA emerged victorious in 2014 general elections.
Since May 16, 2014, the Sensex has jumped 25 per cent to close at 30,133.35 on Wednesday. The broader Nifty at National Stock Exchange closed at 9,351.85.
A scrutiny of net inflows into equity mutual funds over the last three years (between April 2014 and March 2017) shows that domestic investors have pumped in a net of Rs 1,94,738 crore into equity schemes (inflow into ELSS and balanced schemes not included). This is substantially higher than the net inflow of Rs 1,52,863 crore by foreign portfolio investors in the same period.
In fact, no consecutive three-year period (between 2007 and 2017) has ever seen a higher inflow into Indian equities from mutual funds rather than from FPI flow.
Even the net inflow into equity mutual funds for the 9-year period between April 2005 and March 2014 amounts to only Rs 83,626 crore which is less than half of the net inflow received by mutual funds over the last three years.
Other than mutual funds, retail investors also have exposure to equities either directly or through schemes of insurance companies, National Pension System and Employees’ Provident Fund among others.
Thus, the domestic retail investors have been big beneficiaries of the current rally, unlike in the past.
While the latest 10,000-point gain to 30,000 took around nine and a half years, it, probably, is the most significant for Indian investors because the beneficiary this time is not just the FPI investor or the high networth individual but domestic retail investors who have come into big numbers to participate in the India growth story through the mutual fund route.
Industry insiders say that over the last three years, while the number of retail folios in equity mutual funds has jumped from 2.86 crore to 3.93 crore, the participation from retail investors in B-15 cities (beyond top 15 cities) has been increasing every month. “B-15 cities now account for higher number of incremental folios and the investment flow is also strong,” said the CEO of a large fund house.
“This time a broader set of individuals have benefited from the market’s growth as earlier mostly investors from large cities were forthcoming into equities,” said Sunil Singhania, CIO Reliance Mutual Fund. During the bull run in the period between March 2005 and January 2008, when the Sensex jumped from 6,000 to 20,800, a big factor for drawing retail investors, mostly in large cities, was through equity mutual funds. Behind the latest surge, however, are regulatory developments over the last decade including reduction in upfront commission, curb on mis-selling, more transparency and push towards B-15 cities.
This change not only reflects broader retail participation in the market but it also provides more stability as it reduces the impact of FPI outflow.
Singhania said that domestic investors have also become more mature over the last few years. “While they continued to stay invested during volatile periods, we have seen that they even enhanced their investment at dips in the market,” he said.