Moneycontrol Pro Panorama | The indomitable faith of domestic investors  

One may argue that local investors are behind the global risk-off trade that is trimming gains in overseas equities.

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Benchmark stock market indices may be showing signs of exhaustion, but domestic investors continue to retain their faith in Indian equities. Consider what the latest data shows. Equity mutual funds saw net inflows of Rs 19,957 crore in October 2023, a 41 percent rise from September. October marks the third highest monthly inflows into equity mutual funds in the calendar year 2023. Inflows rose despite a 2.8 percent reduction in the Nifty 50 index in October.

One may argue that local investors are behind the global risk-off trade that is trimming gains in overseas equities. US bond yields are rising and the fear of higher interest rates for longer is resetting return expectations of global investors. October also saw the highest selling of Indian equities by foreign investors after January 2023.

Yet, one should not undermine the importance of broader trends.

The financialisation of savings is driving ever greater inflows into the domestic market. India is at a similar situation as the US a couple of decades ago when mutual funds emerged as a preferred vehicle to build wealth and save for retirement, as per HDFC AMC. “They highlighted that growth among Indian mutual funds can be similar to trends seen in the US over the past 30 years, offering legs to growth,” analysts at Jefferies India said in a note after an investor meet by HDFC AMC.

These trends and confidence-boosting October data will provide vital cues for domestic investors as they prepare for Samvat 2080.

Notably, investors have displayed a growing preference for small and midcap schemes. These funds have attracted larger inflows in recent months. Assets under these schemes have grown significantly from January.

Amar Ambani of Yes Securities believes that mid and smallcaps may be on the cusp of a new growth cycle. “Many of the stocks within this space hold leadership positions in their respective sub-segments, boasting of extensive and visible track records,” he adds.

While the optimism is reflecting in fund flows, investors should be mindful of high valuations and the low margin of safety prevailing at current levels.

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R Sree RamMoneycontrol Pro