Retail Inflows Hit ₹1 Lakh Cr; MFs Add ₹2 Lakh Cr in 2024

A significant number of market analysts may be uneasy about the current stock market valuations; however, this hasn't stopped retail investors and mutual funds from investing substantial sums in stocks this year.

Data from NSE indicates that retail investors have invested over ₹1 lakh crore in stocks so far this calendar year. Additionally, mutual funds have exceeded ₹2 lakh crore in investments in Indian equities this year, based on NSDL data.

Besides retail and mutual fund investments, insurance companies have poured over ₹18,886 crore into local equities, while banks have been net sellers at around ₹9,627 crore, according to NSE data.

Interestingly, these substantial inflows from retail and domestic institutional investors (DIIs) come at a time when foreign portfolio investors (FPIs) have shown fluctuating activity in the Indian stock market, being net buyers at ₹30,604 crore in 2024 to date, as per NSDL data.

Analysts suggest that this trend demonstrates that the Indian stock markets are no longer heavily reliant on FPIs, unlike a few years ago. They also believe that retail investors and mutual funds are likely to sustain their enthusiasm as the Indian equity market continues its rally, driven by a resilient domestic economy.

Despite global volatility, India's economy remains robust, supported by the Union budget's emphasis on infrastructure, fiscal prudence, and rural welfare, they assert.

In its latest note, Axis Securities has reiterated that the Indian economy is well-positioned for growth and provides stability amid global volatility. They highlight the long-term growth potential fueled by favorable structural factors and increasing capital expenditure, which is boosting credit growth.

This optimistic outlook underpins expectations of double-digit returns for Indian equities over the next 2-3 years, driven by double-digit earnings growth. Nifty earnings are projected to grow at a 16% CAGR from FY23-26, with financials being the primary contributors to earnings for FY25-26, the report states.

Interestingly, retail and mutual funds, which have driven gains in mid-cap and small-cap stocks, are now shifting focus to large-cap stocks. This shift occurs as many analysts recommend investors remain in the market while maintaining liquidity and investing in high-quality companies with strong earnings visibility over the next 12-18 months.

The benchmarks Sensex and Nifty, along with BSE MidCap and SmallCap, have been hitting new record highs regularly, despite short-term challenges from the Union Budget and tepid Q1 earnings.

Experts note that despite concerns over higher capital gains tax rates, increased STT, and the removal of indexation benefits on LTCG for real estate, continued support from mutual funds and retail investors has kept the market strong.

Indian markets achieved a milestone on Thursday as Nifty crossed the 25,000 mark and Sensex surpassed 82,000 for the first time. Both indices rose over 13% and 15%, respectively, while the broader markets, BSE MidCap and SmallCap, surged over 31% and 29% in CY24 to date.

Looking ahead, analysts suggest the market will closely monitor several key events: next week's RBI policy meeting, the anticipated FED rate cut in September 2024, monsoon progress, US bond yields, oil prices, capital flows, and the US election in November 2024. These factors are expected to maintain volatility in the Indian equity market, with potential swings in either direction.