Domestic investors are taking a prominent position in equities and a surge in mutual fund inflows has reduced vulnerability of the Indian stock market to foreign fund flows, says a report. According to Deutsche Bank’s India Equity Strategy Report, domestic institutional inflows are becoming a meaningful determinant of market performance. “The surge in mutual fund equity inflows is beginning to insulate the Indian equity market, which has so far been largely determined by the velocity of foreign institutional inflows,” Deutsche Bank said in a research note.
An analysis of monthly equity inflows and MSCI India performance shows that between 2004 and April 2014, periods of FII selling coincided with MSCI India declining by 7 per cent, the report said. It further said since May 2014 the decline in MSCI India during periods of FII selling has reduced to less than 1 per cent, “illustrating the increasing potency of domestic equity inflows and the powerful offset these flows have begun to create against FII selling”.
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Mutual funds’ equity and ELSS (Equity Linked Savings Scheme) schemes saw aggregate net inflows of Rs 94 billion (USD 1.5 billion) in April 2017 — more than twice the April 2016 inflow and 61 per cent higher than past 12 month average. Meanwhile, subscriptions into Systematic Investment Plans (SIPs) have been rising consistently. Association of Mutual Funds in India (AMFI) reported a monthly inflow of USD 650 million through SIPs in March, reflecting the increased interest in recurring savings allocations.
“Indian equity valuations are deriving dominant support from this trend,” the report said. Going ahead, market performance is expected to be determined by the earnings trajectory and GST implementation.”With no let-up expected in domestic equity inflows and in the absence of strong primary market activity, domestic liquidity could stretch market valuations,” the report noted.