Which FPI and DII are backing your Investments in India ?

 

If Mr. Late Harshad Mehta were alive then what should he have done today when the Indian Equity Market is under the sleeves of Retail Investors and the BSE Sensex touching above 70000 levels? Well, only guidance to print money. After almost 3 decades post we have financial influencers who are influencing us to invest. The Indian capital market has taken a huge change. We have a question in mind for the H1 of CY 2024, why I should invest now? Should I stay out of the market? How low the Indices could come down? Where I should invest keeping the Elections in Mind?

What we are asking among these so many questions is who all are investing along with me and who all are taking the risk of any plunge? What guarantee do I have for my investments in case there is any blue moon shock for me from the market? 

NSE Midcap 100 and NSE Smallcap 250 advanced by 40.9% and 42%, respectively in the calendar year 2023. These are the alpha-creating indices, but the biggest question is whether they will continue their journey and who will be investing in these high valuations.  The biggest macro front advantage for India is inflation is coming down, corporate balance sheets are getting deleveraged and high capacity utilization of the Indian Industries leads to capex spending in 2024. Further stable policy reforms have created a new plateau for Indian GDP and markets to grow.

Who is Backing my Investments?

•                     As interest rates start coming down we will witness fixed income products inflows coming out and getting into equities.  We witnessed a similar era in 2020 when Interest rates plunged for fixed-income products we saw a huge inflow of investment in Equities to beat the inflation.

•                     The number of stock market investors in India has surged past the 8 crore milestone, registering a remarkable growth of 22.4% from the figure recorded on December 31, 2022.

•                     Further to the above numbers the unique direct investors (going by PAN) reached 8 Cr for the first time, accounting for 5 Cr unique households or nearly 17% of total Indian households. As of September 2023, India recorded around 15. Cr demat accounts. So, three out of every 8 investors currently in the stock market initiated the process to start investing in stocks in just the past two years.

•                     The Direct Equity investors market has some eye-popping numbers to witness and it reflects the maturity of the investors within the cult.  It has been found that total number of contacts traded on the National Stock Exchange’s (NSE) equity derivatives segment is 41.41 billion in just over six months of FY24, which is within striking distance of the record 41.76 billion contracts traded in the whole of FY23.

•                     80% of the 15cr demat holders have investments of an average of Rs 50000/ in direct equities.

•                     National pension Scheme Assets have grown by 27% to ₹10.21-lakh crore as of Oct, 2023. One of the strongest DII’s where the kitty is just getting swelled up more for investments in Equities.

•                     Another DII of India the EPFO, where corpus grew by 16.7% in FY 23 to 21.3 trillion from 18.3 trillion. The investable corpus doubled from 2018-19 from the level of 11.1 trillion. Out of the same around 9.2% invested in ETFs which amounts to 1.96 trillion from the levels of 0.74 trillion in FY-19. The investments in ETFs have been rising since 2018-19 when it invested Rs 27,974 crore. It increased to Rs 31,501 crore in 2019-20 and over the years rose to Rs 53,081 crore in 2022-23

•                     The total SIP (systematic investment plan) inflow in the calendar year 2023 stood at ₹1,83,741 crore after December witnessed a SIP inflow to the tune of ₹17,610 crore. This is pure retail money and has nothing to do with any institutional inflows.

•                     If we look at the total inflows into equity schemes in Mutual Fund space we find it touched a whopping ₹1,61,573 crore during the calendar year 2023.

•                     The age group of retail investors primarily falls between 22 and 35 years, with an annual income ranging from ₹ 5 lakh to ₹ 30 lakhs.

•                     Retail Investors holding was around 18% of total market capitalization in FY 22-23 vs. 11% in FY 18-19. The share of retail investors in the National Stock Exchange (NSE) listed companies has reached an all-time high, hitting 7.62 percent as of September 30, 2023, from 7.50 percent on June 30, 2023.

•                     Currently retail investors now possess a wealth of Rs 60 lakh crore, which is about a fifth of the overall wealth of all the investors in the market.

•                     The largest participation category is from retail investors. In FY 2015-16, this was 33%  of total trades, in FY 2022-23 it was 36.5% and in FY20-21 it was around 45%.

•                     Assets under management of insurance companies in India have crossed 60 trillion rupees ($731 billion)

•                     Looking at the retail investor's strength towards IPO well it has been a staggering growth of more than 200% in CY 23 compared to CY 22. ( data with graph for last 5 years )

•                     Another eye-popping segment to watch is Invits which is getting significantly matured over the years. It is well expected that over the next 5 to 10 years Invits will play a bigger role for the Indian economy and investors.

•                     Fundraising through infrastructure investment trusts (InvIT) and real estate investment trusts (REIT) jumped sharply higher to Rs 11,474 crore in 2023 from Rs 1,166 crore in 2022. The current base of clients is around 2.5 lakh which itself gives room for more growth compared to several demat account holders in India.

•                     Post-election results and the current government is re-elected we will witness a flood of new demat accounts getting opened up and huge growth of investors investing in direct equities, mutual funds, and other equity-related products.   Further to this we have the inflow of FPI funds to come to India in 2024.

2024 FPI Inflows quick snapshot

•                     The US Federal Retirement Thrift Investment Board is switching to a new MSCI index (which includes India) as its benchmark, for its International Stock Index Investment Fund (I Fund). This will result in an inflow of $3.8 billion is likely to hit Indian stocks.

•                     Another change in the benchmark of the US pension fund. The Thrift Savings Plan’s (TSP) International Stock Index Investment Fund (I Fund). From 2024, the fund is transiting to the MSCI All Country World ex USA ex China ex Hong Kong Investable Market Index (also called MSCI ACWI IMI ex USA ex China ex Hong Kong Index). TSP participants had invested $68 billion in the I Fund. Well, the impact will be slow for the markets but the acceptance of Indian equities in the global portfolio is a long-term win of trust and inflows for the Indian market.

•                     The outgoing MSCI EAFE index, covering 21 developed markets across Europe, Asia, Australia, and the Far East, did not include India.

•                     With the transition, Indian equities are expected to gain prominence in the MSCI ACWI ex-USA and ex-China index, potentially attracting significant capital inflows.

•                     In 2023 we have witnessed many foreign funds increasing their allocation stake in India likewise Swedish Investment house EQT AB, US-based Barings, and BlackRock have increased their allocation to India. Several sovereign wealth funds, the Public Investment Fund of Saudi Arabia, Abu Dhabi’s Mubadala Investment Co., and Qatar Investment Authority, have also increased their investment in India. The allocations to India used to be in the range of 5% of their total allocation, which has increased up to 15% in some cases.

Conclusion:

Social media which is the new Equity teacher has changed the investor’s mindset for investing in equities particularly Futures and options in the last few years.  SIP is no longer restricted to Mutual Funds but towards direct Equities also.

The maturity of retail investors has been going up very high. The maturity conviction is proven when it's found that From April to November 2023, the net inflow into small-cap mutual funds – which largely invest in small-cap stocks – has been Rs 30,246 crore out of the total inflow of Rs 95000 in equity oriented Mutual Funds during the period which is around 30%. Where during the same period in the previous 4 years it was found that the net inflows into small-cap mutual funds averaged less than 12% of the overall net inflow into equity mutual funds. From April to November 2022, they had averaged at around 14%. The retail investor’s behavioral aspect of understanding risk and long-term returns has matured significantly.

The whole question while investing gets halted when we try to figure out who is investing and if am I the fool who is investing in these levels. Investing decisions are going to be tough in the coming days as the market and India both will rise and set new bars. The clarity factor will be blurred enough while doing investments and that’s where you need financial advisors to come and navigate the way. The asset allocation matrix will require to be reworked but those looking for long-term have no other option but only Equities.