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Bombay Stock Exchange ( BSE) in Mumbai
Bombay Stock Exchange ( BSE) in Mumbai

SIPs kept market buoyed, but that may not last now

In the last few years, indirect investment made by retail investors into stocks through the systematic investment plan (SIP) route has surged, outpacing money invested by foreign institutional investors (FIIs) into stocks. Will this continue? Mint takes a look.

How much money has come through SIPs?

In 2019-20, a little more than 1 trillion (see Chart 1) was invested into mutual funds through the SIP route. An SIP is where a regular investment is made in a mutual fund scheme every month. A bulk of SIPs are run on equity mutual fund schemes, where the money invested is eventually put into stocks. Hence, SIPs are a regular and indirect form of buying stocks. Right through 2019-20, more than 8,000 crore was invested every month (see Chart 2) in mutual fund schemes through the SIP route. More than 8,000 crore every month was invested through SIPs even in the last four months of 2018-19.

Graphic: Paras Jain/Mint
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Graphic: Paras Jain/Mint

How does it compare with FIIs’ investment?

Between April 2016 and March 2020, around 3.04 trillion was invested in mutual fund schemes through the SIP route. A bulk of this would have gone into equity mutual funds and, hence, stocks. In comparison, FIIs bought stocks worth just 87,403 crore during the same period. A bulk these stocks worth 55,703 crore were bought in 2016-17. After 2016-17, their investments into Indian stocks fell dramatically. It is thus safe to say that during the last three years, it is the money coming into stocks through the retail SIP route that has driven up the stock market, despite the slow growth in company earnings.

How have SIP investors held up the stock market?

In 2015-16, the price to earnings ratio of the 30 stocks that make up the BSE Sensex was 20.2. In 2019-20, this jumped to 26.4. Price to earnings ratio is obtained by dividing the current stock price of the company by its earnings per share over the last 12 months. Basically, SIP money drove up stock prices without a commensurate increase in company earnings.

How many active SIP investors are there?

As of March 2020, the total number of SIP accounts is 31.2 million (one investor can have more than one account), an increase of 18.6% over the March 2019 figure. The question is whether these investors will continue to indirectly invest in stocks. As of January, the total value of investments made through the SIP route was 3.25 trillion. By March, this had collapsed to 2.4 trillion. Of course, a bulk of this fall was because of a massive fall in stock prices in February and March.

Have SIP accounts risen in two months?

The number of SIP accounts has gone up from 30.4 million to 31.2 million between January-end and March-end. Having said that, it takes a month to close an SIP account. Hence, the real picture on this front will start to emerge once the April-end data is released. The stock market fall and the spillover effects of Franklin Templeton winding down six debt fund schemes would have definitely made the SIP investor jittery.

Vivek Kaul is a Mumbai-based economist.

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