SIPs give MFs ammo to counter foreign flight

Mumbai: In the five years that the sensex took to double to 80,000, retail investors have emerged as a counterbalance to deep-pocketed foreign funds who have held sway on Dalal Street for decades. A steady rise in investments by individuals, especially through mutual funds, has fed the bull rally that kicked off after the Covid crash in March 2020.Retail investors didn’t take their feet off the gas even as foreign fund managers grappled with the impact of global disruptions like the pandemic, wars & spikes in inflation and interest rates. In a way, individuals who invest their savings in stocks and mutual funds, often through mobile apps, are partly responsible for furthering the bull run that attracted them to equities in the first place.

While the exact number of individual investors in India is difficult to ascertain, the surge in demat accounts & monthly mutual fund SIP amounts can help tell a story. Consider this: In May 2019, when the sensex hit 40,000 for the first time, the number of demat accounts stood at about 3.6 crore and monthly MF SIPs hovered around Rs 8,000 crore. In five years, demat accounts have more than quadrupled to 15.1 crore and MF SIP flows have nearly tripled to Rs 21,000 crore.“Even though foreign fund holdings in Indian markets are at historically low levels (16% as against a peak of 24% ownership), Indian markets are at all-time-high levels... and a leading factor for this is the enhanced market participation by retail investors,” said Virendra Somwanshi, head (wealth management & capital markets) at Bank of Baroda.Among the reasons for the surge in retail participation in Indian equity markets is improving financial literacy, and improved digital infra & platforms that allow seamless KYC, onboarding & transactions, Somwanshi said.With surging SIP flows and stock prices, the value of assets managed (AUM) by the mutual fund industry has more than doubled to Rs 59 lakh crore from 26 lakh crore in five years. “This is a testament of investors’ wealth creation when following a long-term investment approach. MFs have aided in financialisation of Indian households even though the journey is still in the initial stages,” said Swarup Mohanty, vice-chairman & CEO, Mirae Asset Investment Managers (India).The SIP-driven rise of individual investors has provided mutual fund companies with ammunition, which they deployed effectively amid bouts of foreign fund selloffs. “Domestic investors in India, through direct and indirect investments, have ensured that ‘Sell in May and go away’ remains an adage, despite the sustained FPI selling in May after April, with nearly $2.8 billion of outflows,” NSE chief economist Tirthankar Patnaik wrote in a report.The share of the number of companies with over 50,000 individual shareholders has more than doubled in the last 10 years to 45.1%, NSE data showed. While there are currently 55 companies that have over 10 lakh individual shareholders, this number was just 7 a decade ago, the report showed.Even after this wave of individuals entering the stock market, the share of retail stock market investors at around 10% of India’s population pales when compared to the nearly 60% share in the US.