add_main_imageDo domestic investors have some insider knowledge that foreign institutions don’t? Even as foreign institutional investors (FIIs) have pumped in $20 billion (around ₹ 1 trillion today) so far this year, domestic institutions have sold equities worth ₹ 42,000 crore, the highest in at least five years.
The reasons for that are not difficult to find. Mutual fund companies have had to sell because individual investors have redeemed their money. According to data from the Association of Mutual Funds in India, redemptions from mutual fund schemes totalled ₹ 49,294.75 crore in the first 10 months of this year. NextMAds
That beat inflows by a fair margin and thus, mutual funds saw net outflows of ₹ 12,764 crore in that period.
Secondly, with new laws in the insurance industry crimping the growth of unit-linked insurance plans, fund flow from the insurance industry is also weak, said the head of research at a local brokerage firm.
The consensus among analysts is that retail and even high net-worth individual investors have lost faith in equities as an asset class. Even market-moving events aren’t enough to rekindle their faith in equities. In September, for instance, when the government announced its reform measures such as opening up foreign direct investment in retail, foreign investors bought local stocks worth $3.8 billion. However, mutual fund investors redeemed equity holdings worth ₹ 7,124 crore, the highest this calendar year. Local investors seemed to have taken the opportunity to book profits.
This lack of faith again can be attributed to a couple of reasons. One is the volatility in equity markets, which has led many investors to burn their fingers.
While one-year returns for the Sensex are a decent 15.4%, two-year returns or even five-year returns are flat. In comparison, alternative asset classes such as gold and property have yielded far more. Simply put, the returns for individual investors in equities are not worth the risk.
This is a phenomenon that has been reported even in other markets such as the US or the European Union.sixthMAds
So, what will bring investors into equities? According to experts, retail investors typically move into stocks when markets get into new highs or when alternative assets are looking to decline. As positive news and liquidity go, markets are looking at new highs in some time, which still remains iffy. However, the second condition is not likely to be met. Even if fixed deposit rates decline as the central bank cuts rates in January-March, there is not much let-up in gold prices.
Thus, it is likely to continue to be business as usual when market moves will purely be an outcome of what the foreign investor does.
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