Today, the size, scale and players have completely changed. FIIs and REITs, which used to be the only dominant players because they were mostly only in the top 500 stocks, are no longer in pole position.
Although their participation in the stock has an impact on prices, they are increasingly matched by national institutions which have gained influence and have a much larger role to play. The current AUM of the domestic mutual fund industry is around Rs 37.22 lakh crore. This does not include the now listed LIC which has an AUM of around 40 lakh crore.
This significant domestic fund AUM is funded by an active investor base who regularly invest through the SIP channel. SIP’s average monthly inflow increased steadily from Rs 8,000 crore per month in FY 2020-21 to 10,000 crore in FY 2021-22 and the first two months of FY in course 2022-23 at Rs 12,000 crore.
This bodes well for the domestic mutual fund industry. The SIP investor folio base is a large number of 5.48 crore investors indicating the depth and the fact that it is not going to stop in the near future.
Demat accounts in the country have now touched 9.47 crore and around the pre-Covid times of March 2020 were below the 5 crore level. This indicates that staying at home and equity levels hitting all-time lows has spurred individuals to become investors. Their confidence was rightly justified.
Let’s look at the table in the article. In the first 10 years, the net figure of FIIs or FPIs and the counter figure of national institutions were not very large on an annual basis. 2008 saw the global debt crisis and naturally FIIs would be sellers. From 2012 to 2014, FIIs were net buyers and domestic funds were net sellers, helping them to source. And from 2015 to 2018, FIIs were sellers but not very big and national funds were buyers, sometimes aggressive.
In 2019, both were buyers, the second time in 10 years after 2009. In 2020, FIIs were buyers while domestic funds sold. In 2021, REITs sold Rs 92,000 crore while domestic funds bought a little more at Rs 94,000 crore. 2022 has been one-sided with FII’s aggressive selling and has already sold over Rs 2.67 lakh crore on Friday (updated from the chart). It’s just five and a half months from now. Domestic funds tried to keep pace and bought Rs 2.15 lac crore on Friday (updated from chart).
Inflation in the United States is at its highest level in more than 40 years and is becoming a major source of concern for the country and the world. The US Fed has over the past week raised interest rates aggressively to 75 basis points and hinted at another similar hike in late July at the next Fed meeting. Interest rates that were zero are already at 1.75% at the high end of the range and would be 2.5% by the end of July.
With the balance sheet also contracted, funds become expensive. Global markets are under pressure. FIIs are forced to reduce their exposure and they sell aggressively in India, as it is a market where they are making handsome profits even today. Overall, markets are still double the values reached at the March 2020 low. They are getting a fairly easy exit, with domestic mutual funds buying what is on offer.
One wonders why domestic funds keep buying for a while and let FIIs sell as much as they want. I don’t know if that would be the right way to look at it, because REITs would wait for the markets to rebound and then sell. We should probably put an end to their desire to sell.
The random future scenario of a guess. At one point, the FII would have sold everything they needed to sell. After completing the first part and realizing that India has the ingredients for a bullish rally, they would consider India as an investment destination. The stock would be available only from national institutions. Could cause a short squeeze and drive markets higher. One way of looking at things and hopefully things will play out. When and how long? Not sure.
A small point to keep in mind is that the Indian and Indian indexes are all at a 52-week low.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. Opinions expressed are personal)
–IANS
arun/ksk/