Individual Investor is no longer risk-averse and is making right decisions

The Institutional Investors – both foreign and domestic, FIIs/ FPIs and DIIs – being large investors, have at their command significant capital. Emerging (capital) markets, like India, are among their preferred investment destinations. Historically, FIIs have been key participants in the Indian markets and their moves have often weighed heavily on the direction of the markets, with Individual investors blindly emulating the investment strategies followed by FIIs/ FPIs – buying when they buy and selling when they sell – instilling confidence or fear among them. But that seems to be changing now.

During the last financial year (FY22), the inflows into equity markets linked to the Individual Investors i.e. SIP flows (systematic investment plan) have been Rs.1.24 lakh crores, whereas the FIIs sold ₹1.40 lakh crore in equities. Despite heavy selling by the FIIs, especially since Oct’21, the benchmark index in the Indian equity market, Nifty 50, did not fall much and corrected lower by less than 1% between October’21 and March’22.   

Historically, the major trading in the stock market has been dominated by Institutional investors (majorly FIIs/ FPIs). However, in the recent past that seems to be changing. In FY21, the share of traded volumes, for the Individual Investors, in the cash market increased to 45%, up from 33% in FY16.

Moreover, the number of active Demat accounts, as in September 2021, was 70 million, up from 20 million in 2012 and 50 million in December 2020. Moreover, as per the latest AMFI (Association of Mutual Funds in India) data, the cumulative inflow into mutual funds linked to SIPs (systematic investment plan) reached a record Rs.4.8 lakh crores in the 5 years to March 2022. This was nearly 3 times the inflow from foreign portfolio investors (FPI/ FII) and 1.3 times the total local fund investment during the period (data source NSDL and SEBI). As is evident from the table below, the annual incremental SIP inflow has steadily risen in the last 6 years and has almost trebled since FY17.

Period	Annual SIP flow (Rs. Crores)
FY17	43,921
FY18	67,190
FY19	92,693
FY20	1,00,084
FY21	96,080
FY22	1,24,566

Resultantly, the assets under management (AuM) of the SIP-linked funds in the total MF AuM rose to Rs.5.8 lakh crore by the end of FY22, from Rs.4.3 lakh crore a year ago. The growth is highly granular in nature, as can be gauged from the fact that SIP accounts grew by 31% annually over the past 5 years to 53 million in FY22. Moreover, the Monthly SIP Book has grown from Rs.10,000 crore to Rs.12,000 crore in a short span of over last 6 months during

Compare the SIP Inflow data above with the FII flows data. During FY22, FIIs sold ₹1.40 lakh crore in equities compared to last year when it was a net buyer of ₹2.74 lakh crore. Meanwhile, DIIs were net buyers of ₹1.26 lakh crore in first eleven months of FY22 compared to net sale of ₹39,000 crore last year. Markets do not seem to be intimidated by the selling spree of foreign investors as domestic investors, especially Individual Investors, have been at the rescue like never before.

To sum it up, while there is no doubt that we are witnessing a structural change with regards domestic flows into the capital markets but we must not forget that such flows are also cyclical in nature. Weakness in flows combined with risks like inflation and geopolitical factors can surely upset the onward march of the equity markets. But the fact that ‘time in markets’ is more important than timing the markets is well understood by the Individual Investors and that is heartening to see.

Article Source

ETIG/ Economic Times