2021 – Looking Back: Markets rally — Retail investors make up for portfolio outflows

Markets hit new highs during the year, thanks to strong inflows from domestic investors, which has cushioned the periodic withdrawals of foreign money.

After raising over Rs 1 lakh crore from the primary market, the pipeline for the next year looks robust with insurance behemoth Life Insurance Corporation (LIC) set to hit the market in 2022. (File/Reuters)
After raising over Rs 1 lakh crore from the primary market, the pipeline for the next year looks robust with insurance behemoth Life Insurance Corporation (LIC) set to hit the market in 2022. (File/Reuters)

By Yoosef KP & Ruchit Purohit

Equities have had a good run in 2021, with benchmarks clocking their best performance in four years. This is despite the fact that foreign investors bought less shares in 2021 than they did in the previous two years.

Markets hit new highs during the year, thanks to strong inflows from domestic investors, especially retail, which has cushioned the periodic withdrawals of foreign money. The net FPI year-to-date tally came off from $9.2 billion in November to $3.8 billion at the end of the year. In contrast, domestic institutional investors (DIIs) bought more than threefold of FPI with their 2021 purchase hitting $12.5 billion, Bloomberg data showed.

Even the number of SIP (systematic investment plan) accounts continues to rise after a brief lull in the 2018-20 period, with deeper penetration resulting in the average flow per account/folio falling to Rs 200-Rs 2,500 per month. “SIPs now account for $1.5 billion/month of inflows – enough to sustain the market through even aggressive FII selling,” Credit Suisse said in a strategy report.

However, the rally in Indian equities seems losing momentum of late on apprehension of tightening monetary policy by central banks, premium valuations and a possible spike in Covid-19 cases, alongside other factors. “In H1CY22, we think the market could cool off as it absorbs the gains of the preceding 18 months. Earnings momentum could pick up in 2HCY22,” HDFC Securities said in its outlook report.

After many years of missing earnings forecasts, analysts are now hopeful of earnings upgrades with expected revival in bank earnings, followed by growth in Consumer Discretionary, Materials and Energy. “After nearly a decade-long lull when annual growth in Nifty EPS slowed to just 4% (FY12-19), 15% growth is expected between FY19 and FY24 (17% FY22-24),” Credit Suisse added.

After raising over Rs 1 lakh crore from the primary market, the pipeline for the next year looks robust with insurance behemoth Life Insurance Corporation (LIC) set to hit the market in 2022, solely contributing more than Rs 70,000 crore, based on the 10% stake sale via the IPO.

Analysts and merchant bankers foresee a much better year ahead for public issuance as more technology companies, SaaS firms, realty companies and start-ups are looking to tap the market. “The IPO momentum is likely to continue in CY22 which will be dominated by resilient sectors such as New Age Tech, FIG, Healthcare, Consumer, Real Estate and Specialty Chemicals. With IPO pipeline in place of $15 billion filed with Sebi & awaiting launch and $11 billion likely to be filed in the near term, we can expect a good share of IPO activity across midcaps and large-caps with several high-quality companies looking to list,” said V Jayasankar, wholetime director, Kotak Mahindra Capital Company.

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