With stock markets giving handsome returns, mutual funds—aided by strong inflows from retail investors—pumped in nearly Rs 2 lakh crore in the first six months of the financial year. In comparison, foreign portfolio investors (FPIs) put in less than Rs 1 lakh crore.
Data from the Securities and Exchange Board of India (SEBI) show that equity mutual funds invested Rs 1.92 lakh crore till September 27 this fiscal, while FPIs invested Rs 83,289 crore (approximately $9.96 billion) in the same period.
During this period, benchmarks Sensex and Nifty returned 15% and 16%, respectively. The broader market indices performed even better as the BSE Smallcap index soared 32.4% and the BSE Midcap index rose 25.5%.
“Strong flows have been an outcome of very strong fundamentals. Our fiscal deficit, current account situation, forex reserves, health of banks and corporate balance sheets, inflation, and GDP growth is in a Goldilocks scenario…This is making it attractive to invest and, not surprisingly, equity returns have been strong and so are flows,” said Anand Vardarajan, business head at Tata Asset Management.
With persistent flows, both directly and indirectly through MFs, the ownership of retail investors in the Indian equity markets has been on a constant rise.
Fund managers believe this is just the beginning of a structural story, and that equity as an asset class is only catching up with others like real estate and gold among Indian households.
In a recent report, Jefferies’ Christopher Wood pointed out that equities make up 5.8% of Indian households’ asset ownership, sharply lower compared with gold (15.2%) and real estate (51.3%).
“While valuations remain an issue in the small-cap and mid-cap space, the remarkable resilience of the stock market in the context of the recent hikes in the capital gains tax is proof of the extent to which Indian households now believe in the long-term equity story,” Wood said.
While India’s strong growth prospects will continue to attract inflows from retail investors, experts say FPIs will also continue to see India as a bright spot among emerging markets despite higher valuations and China stimulus.
“We believe the spillover from China’s policy shift should initially be modest for regional and global growth and earnings prospects, and hence for equity markets in Asia and elsewhere,” Franklin Templeton said in a note.
While market participants believe the fund flows will continue from mutual fund investors for the rest of the year and going ahead, they said there could be some trend changes with large-caps trading at reasonable valuations, and index funds and exchange traded funds growing in popularity.