The Indian equity markets are on a roll in 2017, trending in line with global markets whilst outperforming most of our peers by a large margin. Last year 2016 was an action-packed year, with the Nifty 50 recording 13% gains despite foreign portfolio investments being at five-year lows adding to the high political drama. The election victory of Donald Trump in the US Presidential election; Britain’s eventual exit from the European Union following the Brexit referendum; sudden decision of RBI governor Raghuram Rajan to quit and the Central Government’s demonetisation drive — all weighed in on the Indian equity markets in 2016, adding to the pressure from low foreign portfolio investments.
This year 2017, markets have seen a broad participation from almost all the sectoral indices, supported by both, foreign and domestics institutional investors. The sharp rise in the Indian Equities markets in 2017 can be credited to the record increase in FII (foreign institutional investors) and DII (domestic institutional investors) activity. Compared to last year where FII’s were net buyers to the tune of 15,000 crores in Indian equities, 2017 has seen a larger chunk of foreign investment with the figures rising close to 60,000 crores in the first 9- months of the year.
DII’s continue to support the domestic bourses by pumping in fresh liquidity. In the absence of authentic data on the scale of direct retail investments into the Indian equity markets, a look at equity investments by mutual funds in India will provide some evidence on the indirect flow of retail money into equities. According to the figures provided by AMFI, retail mutual fund folios exceed 5 crores and a majority of them are concentrated in equity-linked schemes. The average monthly investment by retail investors into mutual fund schemes is expected to be in the Rs 3000-4000 crores range, up from Rs 1500- 2000 crores.
The outstanding performers have been the realty, financial services and the banking sectors which were weighed down following the demonetization drive late last year. At the end of July 2017, the realty index was up about 64 percent with banking and financial services rising about 40 percent and the broader Nifty 50 Index up about 24 percent during this calendar year. Two drastic changes that have helped the NBFC sector are demonetisation and implementation of GST, both these changes have brought in significant amounts of money into the formal banking system. The natural progression for these funds has evolved into financial instruments from traditional physical assets, largely aiding the NBFC sector.
The retail industry in India is growing at an enormous pace and with inflation subsiding, interest rates could continue heading south. IT and Pharma indices have begun to play catch up, which could be on account of the rupee having depreciated significantly over the last month and a half. We expect the bullish trend in equities to continue for some more time due to the lack of an alternative investment option for retail and institutional investors alike. As markets spike higher, the volumes in the Indian equities markets either directly or through the Institutional route is only going to expand.
The writer is Co-founder of Zerodha.