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Friday, September 24, 2021

Market rallies despite FPIs exit: Retail investors step up

Despite the FPI pullout, the Sensex has gained over 6,600 points, or 13.36 per cent, from 49,509 since April 1 this year, aided by sustained flow of funds from retail investors and institutions.

Written by George Mathew | Mumbai |
August 30, 2021 4:00:27 am
sensex, retail investors, mutual funds, stock market, indian express, indian express newsThe BSE in Mumbai. (File)

While the Sensex closed at an all-time high of 56,124.72 on Friday with retail investors going into an overdrive, foreign portfolio investors (FPIs) sold stocks worth Rs 779 crore during the day, taking the total outflows (excluding IPOs) to over Rs 48,000 crore since April this year, as worries over a taper tantrum in the US increased and valuations of domestic stocks shot up.

Even as retail investors tightened their grip over the stock markets, data from the exchanges show FPIs have taken out Rs 7,652 crore in August so far, Rs 23,193 crore in July, Rs 25 crore in June, Rs 6,015 crore in May and Rs 12,039 crore in April. When compared to this, FPIs had invested Rs 42,044 crore in February this year, Rs 48,223 crore in December 2020 and Rs 65,317 crore in November. Stocks offloaded by FPIs have been acquired by retail investors and institutions with alacrity.

Despite the FPI pullout, the Sensex has gained over 6,600 points, or 13.36 per cent, from 49,509 since April 1 this year, aided by sustained flow of funds from retail investors and institutions. In the April-July period, mutual funds made net equity purchases of Rs 32,155 crore, as against net sales of Rs 11,140 crore in the same period of last year, reflecting the increased inflows in the funds and heightened interest of retail investors in the equity markets. Domestic institutional institutions have invested Rs 46,940 since April this year. Investments by retail investors through SIP (systematic investment plan) are averaging around Rs 8,000 crore every month. On the other hand, active investor demat accounts rose by 27 lakh in a year to 2.221 crore as of July 2021.

The market rally is now being led by domestic retail investors —amply supported by domestic institutions and mutual funds — amid hopes that the Covid-hit economy will rebound in the coming quarters as vaccination has picked up and the number of infections has fallen from May highs.

“Even though FPIs represent ‘smart money’ they are no longer market movers in India. At least for now, retail investors have emerged as market movers and DIIs also are playing a supportive role. We don’t know how long this retail exuberance will last. Present valuations do not offer any margin of safety,” said VK Vijayakumar, chief investment strategist, Geojit Financial Services. Perhaps this is the reason why FPIs have been consistent sellers in the cash market for many days now. At the same time, they don’t want to lose momentum in the market since India is, by far, the outperformer in emerging markets.

Suman Chowdhury, chief analytical officer, Acuite Ratings & Research, said FPI sales can be attributed largely to increased concerns on the taper down of bond purchases by the US Fed which are expected to commence by the end of the calendar year and normalise the excess liquidity in the global asset markets. However, the markets have been relatively stable due to steady purchases by DIIs and domestic retail investors as the accommodative policy stance of the RBI has ensured ample liquidity in the system.

US Fed chair Jerome Powell made clear some important points that gave investors the comfort they craved at the virtual Jackson Hole event. He indicated that tapering and interest rates are not linked, which is very important if the Fed wants to avoid a mini taper tantrum when they do pull the trigger in the coming months. The message from Powell was that the plan is still to taper this year.

“The result season is over with better-than-expected delivery and vaccination drive going on in full swing. However, the sharp outperformance in the past 18 months led to concerns on valuations,” said Siddhartha Khemka, head-retail research, Motilal Oswal Financial Services.

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