India’s outperformance compared to other markets in the March quarter is because of persistent buying by retail investors. From being price takers, “domestic investors are now marginal price setters with their persistent bid,” says Morgan Stanley Research.
Support for India’s stock market has come from retail investors as they continued to stock up on equities quarter-on-quarter, as other financial instruments fetch relatively muted returns, the report said.
The combined holdings of mutual funds and retail investors in direct equities has risen by 600 basis points (bps) since 2015 while the share of foreign portfolio investors (FPIs) is down 150 bps.
Retail investors have continued to raise their holdings in the top 75 listed firms by 81 bps sequentially in the March quarter.
This is despite the volatility that roiled markets in February. In comparision, there was a 75 bps fall in FPI ownership quarter-on-quarter.
Analysing quarterly ownership data, Morgan Stanley says domestic investors are about to become larger holders of equity than FPIs for the first time since 2010. FPIs now hold 25.6% in the top 75 stocks while domestic investors hold 24.8%.
Equity assets of domestic mutual funds were at Rs 20 trillion at the end of March 2022, second only to the AUM of FPIs at Rs 47 trillion. Assets under management for domestic mutual funds have doubled in the last two years.
Even as FPIs retain overweight positions on some select sectors, they have continued to trim their holdings. According to the foreign investment bank, FPIs are running active portfolios compared to domestic institutions. India is fast becoming a macro-driven investment destination rather than a stock picker’s market. This suggests that sectoral bets will increase, even as some stocks see more inflows than others.
According to Morgan Stanley, “From among the top 20 aggregate institutional holdings, active positions (relative to the MSCI Index) rose the most for Reliance as institutions probably had to catch up with the stock’s outperformance. They declined the most for HUL during the quarter ended March 2022. Reliance is in our Focus List.”