The MPC of RBI noted that despite the unfavorable international environment, domestic economic activity was resilient. Domestic investment has been increasing steadily. Here are some details
Domestic investors stepped in to fill the void when the global headwinds grew stronger and foreign investors began to lose faith in the Indian equity markets. They seemed unwavering in their belief in India’s growth story and its sound economic foundation.
According to a study by Morgan Stanley, since 2015, foreign portfolio investors (FPI) holdings in a sample of 75 Indian companies have decreased by about 230 basis points (bps) to 24.8%, while domestic mutual funds (MFs) and individual investors have increased their stakes by 580 bps and 157 bps, respectively.
Since October of last year, the selling of FPIs has been brutal. Due to a number of factors, including geopolitical unpredictability and tightening monetary policy across central banks, investors net sold shares worth Rs 2.56 trillion over the nine months since October. FPI withdrawals totaled over Rs 50,000 crore in just a month of June alone, making it the worst sell-off in almost two years. The situation changed, though, in July when net foreign purchases totaling Rs 5,000 crore were made in Indian markets.
But it’s unlikely that the recent sales by FPIs were the only factor in domestic investors’ success. Let’s use a bigger sample size. the shareholding patterns which are available for 1,770 NSE-listed companies.
As a result, according to data from primeinfobase, the share of domestic institutional investors (DIIs) in these companies, along with retail and high net worth individual (HNI) investors, reached an all-time high of 23.53 percent as of June end. Domestic institutions such as mutual funds, insurance companies, pension funds, etc. are examples of domestic investors.
When compared to insurance companies and institutional investor LIC, the share of mutual funds holdings in Indian companies increased to 7.75 percent in FY22 from 4.99 percent in FY17.
The enormous increase in domestic investments is also due to the massive influx of retail investors into the equity markets via Systematic Investment Plans, or SIPs, and other channels. The information available indicates that there are approximately 55.5 million mutual fund SIP accounts used by investors for regular investments. SIP contributions have nearly tripled since FY17, reaching Rs 1.24 trillion in FY22.
According to information from the Association of Mutual Funds in India, the assets under management (AUM) of the SIPs reached Rs 5.76 lakh crore at the end of FY22, growing by more than 30% annually over the previous five years. At the end of FY22, retail investors’ overall stock ownership increased from 6.79 percent in FY17 to 7.42 percent.
Additionally, since 2015, steady market inflows have been made possible by India’s pension fund’s EPF investments in stocks. As of FY21, the EPFO had approximately Rs 1.23 trillion invested in exchange-traded funds (ETF). Over time, it has also made investments in a variety of public sector businesses.
Will this trend continue, then? And is the fact that markets are not overly reliant on foreign investors—who were once hailed as the “price setters”—a good sign? Morgan Stanley has even given the tag to domestic investors due to their increasing influence.
Experts predict that given their relative under-allocation to India, FIIs’ shareholding in Indian companies will increase over time. The shareholding of domestic investors will also continue to be substantial. And everything is positive for the market.
