As the Indian stock market witnessed a remarkable milestone with the benchmark Sensex scaling the 75,000 mark on Tuesday, the real heroes of this financial saga have been none other than domestic institutional investors (DIIs), predominantly insurance companies and mutual funds. Their substantial engagement in equity purchases, amounting to an impressive Rs 1.12 lakh crore since January, has been pivotal in propelling the bull market to its current zenith.
Interestingly, the robustness lent by DIIs comes despite the retreat of foreign portfolio investors (FPIs), who have withdrawn Rs 53,145 crore from the market this calendar year, bypassing investments in initial public offerings (IPOs). Even amid torrential exits by FPIs, anticipated due to a rise in US bond yields, the market’s steadfastness was hardly shaken. Such resilience can be ascribed to the compensatory acquisitions by DIIs and individual investors.
V K Vijayakumar, the Chief Investment Strategist at Geojit Financial Services, observes, “The FPI strategy of pushing the market down is not working since their selling is countered with buying by DIIs and individual investors.” Over the last three years, it has been DIIs who have predominantly orchestrated the bull rally when Sensex impressively escalated from 50,000 to 75,000 points, relegating FPIs to a secondary role.
Validation of this trend is visible in the mutual fund sector, which has been a major catalyst sustaining the upward trajectory of the market. The Association of Mutual Funds in India (AMFI) illuminated the scenario with their latest data, revealing a 23% hike in equity mutual fund scheme net inflows in February to Rs 26,865.78 crore, with thematic funds enjoying the lion’s share of interest. This represents an uptick from Rs 21,780.56 crore in January, and systematic investment plans (SIPs) scaled a record high of Rs 19,186.58 crore in February, up from January’s Rs 18,838.33 crore.
In light of such cash surges into small and mid-cap schemes, AMFI proactively addressed mutual fund houses last month, urging them to safeguard investor interests. The Indian stock market behemoth, the Life Insurance Corporation (LIC), reported a substantial Rs 39,000 crore profit for the December quarter—an indication of strategic investment acumen.
Ownership data in the Indian market currently denotes FPIs holding a 16-18% stake, whereas DIIs own around 20%. Forecasts indicate a probable increase in DII stakes, unless FPIs make significant forays into Indian stocks in the ensuing months. Currently, domestic inflows from mutual funds, insurance, pensions, PMS, and AIF collectively amass a robust Rs 3 lakh crore per annum, a flow predicted to maintain structural consistency for the next 5-10 years, according to industry fund managers.
Looking ahead, fund managers exhibit a bullish outlook for Indian markets. In order to double India’s GDP by 2030 without resorting to excessive leverage, additional equity capitalization of Rs 2.5 lakh crore annually over the next seven years is essential. From an investor standpoint, a similar magnitude of equity capitalization is also desirable, taking into account the expected domestic inflow into the capital market. Pantomath Financial highlighted the importance of ensuring the vibrancy of our capital market because of high promoter holdings and anticipated capital inflows.
In summation, as the Sensex proudly stands at the 75,000 threshold, it is the collective conviction and strategic investment of domestic players that has cemented this triumph. This saga not only showcases the resilience of India’s domestic financial institutions but also underscores the underlying strength and potential of the country’s burgeoning capital market ecosystem.
