The change of Hands Behind the Sensex 80000 Mark.

In 2012 the FII holding was ~25% in the Indian equity market and today as 15% and still the Indian equity market is at 24400 Nifty and 80000 levels of Sensex. In between the domestic retail and institutional investors’ holding has moved from ~25% in 2012 to ~36% now. The Indian middle-class maturity is growing day by day which we see every day and every year getting reflected in the consumption numbers.  Consumption season of physical assets is also back for the common people of India.  The Indian capital market has changed dramatically and when Sensex is at 80000 levels the participation rate in the market increases substantially.  I have question for the middle-class investor of India. Are we always scared even when we are in our best of times? Are we still not looking towards 10 years from now for our investments and India as a whole?

 India's gross savings declined below 30% to 29.7% in 2022-23, according to government's data release, from 30.8% in the previous year. Most importantly we are all worried about the falling household income but are we focusing on the household asset base growth and its net worth. The per capita income of India has grown significantly which means more consumption of white goods, physical assets followed with financial investments assets.  As for whether there is a bubble in large-cap, mid-cap, and small-cap stocks, it's a pertinent question in the mind of every guy on the street.

  The growth of per capita income followed with 4 times growth in demat account being opened from the level of 4cr to 16cr within a span of 4 years. Further its being found that foreign investor holdings in NSE-listed companies dropped to their lowest level in 11 years, falling to 17.7% during the March quarter. In contrast, the rising enthusiasm among domestic investors not only increased overall domestic investor holdings to 16.1% but also propelled domestic mutual fund holdings to a record high of 8.9%.

 By the end of the March quarter, the gap between Foreign Institutional Investor (FII) and Domestic Institutional Investor (DII) ownership of Indian equities narrowed to 1.6%. This marks a significant shift from March 2015, when the gap was much wider at 10.3%, which was twice the size of domestic investor holdings at that time, according to data from Prime Info base.

 Over here we have a question in mind that are we dependent on FIIs money for the market to scale new high? The truth is yes since sentiments plays a critical role for the same. The current 36%  holding of  DII’s is heading towards 40% and  on the similar lines if interest rates starts coming down and married with matured investor and investment product market FII’s inflows will also grow. Now where one will witness a slowdown.

 Well, FII’s were bearish on India in January and mild bullish in Feb followed with very aggressive in March and June. Foreign portfolio investors (FPIs), who had scaled back their investments in emerging markets like India amidst rising interest rates in Western economies, staged a robust comeback in June. During the month, they injected a substantial Rs 26,565 crore into Indian stocks, marking a significant reversal from their earlier cautious stance. These inflows not only offset the substantial outflows witnessed in the first five months of 2024 but also turned FPIs into net buyers of Indian equities, accumulating Rs 3,201 crore by the end of the first half.

Meanwhile, domestic institutional investors (DIIs), particularly mutual funds, continued to play a pivotal role in bolstering the market. Throughout the year, DIIs have consistently supported the market, contributing a total of Rs 2.30 lakh crore to equity investments during the first half of CY24. Of this amount, mutual funds alone accounted for Rs 1.80 lakh crore, underscoring their substantial influence in driving the recent market rally.

 Thus, the Indian stock market in 2024 has seen a resurgence driven by a combination of revived FPI interest and strong DII support, despite earlier challenges posed by global economic conditions. If we look historically we find that With FIIs investing a net $19 billion (Rs 93,100 crore) in 2009, crossing the 2007 level, the Sensex surged 85%. In 2010, the trend continued and FIIs pumped in $30 billion(Rs 1.3 lakh crore) into Indian equities, helping the Sensex gain 25%.

 Meanwhile, many investors overlook, whether consciously or unconsciously, that the stock market's surge reflects only a fraction of the economy. This segment, albeit significant in its size and scope, largely consists of the organized sector. This portion of the economy is generating considerable enthusiasm, driving a bullish narrative and elevating stock exchanges.

The rapid rise in stock prices, especially in these categories, has sparked debates about potential bubbles. Investors and analysts are closely monitoring valuation metrics, market dynamics, and economic fundamentals to assess the sustainability of current price levels. While some sectors may be exhibiting characteristics of overheating, the broader market sentiment remains influenced by a complex interplay of factors, including liquidity, investor sentiment, and economic outlook.