Retail Therapy For The Indian Market

During the month of April, mutual funds’ systematic investment plans (SIPs) saw inflows of over 3.8% when compared to the month before. The total SIP investments amassed from October 2021 to April 2022 were ₹79,975 crores.

Interestingly, these investments have come at a time when foreign institutional investors (FIIs) have been relentlessly pulling out funds. From October 2022 to April 2022, FIIs’ sales were recorded to be at ₹1.66 trillion. May turned out to be no different with net FIIs sales reaching ₹48,447 crores as of May 24, 2022.

The number of Demat accounts has been increasing at a meteoric pace, taking its total count to 89.7 million. This is 80% more than the number of Demat accounts there were in December 2020. In fact, from November 2021 to March 2022, the Demat tally is seen to have shot up a good 22%.

There are a few inferences that can be drawn from the prospering retail participation:

1. The bull run we witnessed last year has instilled confidence within investors to open up new Demat accounts. The average monthly SIP investment since the end of December 2020 has been over ₹10,000 crores. Before this period, the average SIP was calculated to be ₹8,100 crores. This also suggests that the law of demand doesn’t really hold up when it comes to investing. Higher prices always tend to attract more investments. 

2. RBI’s focused attempts to make government borrowing cheaper have compelled investors to scout higher returns from a relatively attractive stock market. This led to a bubble formation, where the stock prices seemed to be completely incongruous with the potential earnings.

3. The overwhelming response to IPOs enticed loss-making companies to list at high valuations, bagging huge capital infusions. Most of these companies have, however, experienced the wrath of bears dragging them below their listing prices.

The money that QIBs put into an IPO is also retail money. QIBs include financial institutions such as mutual funds and insurance companies. The retail amount invested in these institutions through SIPs makes its way back to IPOs all over again. 

Retail participation had somewhat negated the massive FII sell-off, thereby preventing a market free-fall. Such behaviour, which is in contrast to retail behaviour, can be traced back to 2008 when we witnessed similar behaviour by FIIs who bought at low valuations to sell at high prices.