Just when the overseas investors seemed to have lost steam, domestic investors have provided the much-needed liquidity to the market, helping them climb fresh all-time highs.
Mutual fund houses have pumped in twice more than foreign institutional investors (FIIs) since July 24, when the market had closed at its previous record highs.
On Monday, easing domestic inflation and global tensions helped the Indian market top those highs with the Sensex ending 287.73 points, or 1.10%, higher to end at a new life high of 26,390.96.
The NSE Nifty, too, ended 82.55 points, or 1.06%, higher at 7,874.25. The previous all-time closing highs for the Sensex and the Nifty were 26,271 and 7,831 on July 24 after an eight-day gaining streak.
According to Sebi data, mutual funds have pumped in over Rs 5,400 crore, twice of Rs 2,685 crore invested by FIIs between July 24 and August 13. (Exact data for the latest two trading sessions isn’t available due to holidays).
The heavy buying by mutual fund houses is on the back of robust inflows witnessed by them in the last few months. Net inflows in mutual fund equity schemes were more than Rs 10,800 crore in July, most since January 2008.
Experts believe come back of the retail investor after almost five years could be a game change for the market.
“They are still on tippy toes – but five years since turning their backs on equity, India’s retail investors are testing the market…the markets momentum and Modi mood is the swing, the retail investor could be the next big thing,” said Aditya Narain, managing director and India equity stratagist, Citi India said in a note.
“If the retail investor decides to dive in (after tip toeing), it would make a difference, for now and beyond,” he said.
After investing over $ 12 billion, the pace of FII buying was seen slowing due to global risk-aversion and also due to lack of more legroom in some stocks. Buying by domestic investors could provide more legs to the market rally and also provide a cushion from any selling by overseas investors, believe experts.
“Domestic money is showing huge confidence in equities. Significant flows could come in from the domestic side in the next three years. The increase in equity assets is largely on account of incremental allocation by investors who have been underweight this asset class over the past few years,” said S Naren, CIO, ICICI Prudential AMC, the second-biggest mutual fund house in terms of asset.
According to provisional exchange data, domestic investors on Monday invested Rs 490 crore into the cash market, while FII net buying stood at Rs 473 crore.
Investors are hopeful that Prime Minister Narendra Modi to take steps to arrest inflation and boost the economy. In Independence Day speech, Modi pressed upon the need for better governance and vowed to fire up the bureaucracy to deliver results, which market experts, said provided confidence to the market.
With the market gaining nearly 25% so far in 2014, analysts hope uptick in earnings and re-rating of the market will provide further upside. Nomura, which has set Sensex target of 30,310 for December 2015, expects Sensex earnings to grow at a compounded rate of 12% between FY14 and FY17.
“We are very positive on the long-term prospects in Indian equities, since we believe economic growth will pick up while inflation will come down. There is a huge play available for equity markets with the earnings likely to improve going ahead,” said Naren.