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Shifting trends: Growing confidence of retail investors in Indian markets
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2 min read | Updated on November 07, 2024, 13:55 IST
SUMMARY
A decade ago, any major movement in FIIs would have a significant impact on domestic markets. This is now changing as Indian Markets continue to propel to new highs despite FII (the former trend setters) selling. Growing retail influence and resilience are a key standout. Read on to find out more….
Mid-market update: Bulls make a strong comeback on D-Street, India VIX cools off from 18-month high, broader markets outperform
Let’s look at the chart below.
Indian equity markets rising despite highest-ever FII selling
Source : NSE, CDSL
During the Global Financial Crisis of FY07-09, retail participation contracted and stayed subdued for a long time afterwards. In FY09, during the Global Financial Crisis FII sold stocks worth ₹47,000 crore, contributing to a ~68% fall in the NIFTY50 from its peak.
However, recent events indicate a shift in the trend. Despite COVID-19, rising oil prices, and multiple global skirmishes, the confidence of retail investors continues to increase, which is evident from rising their shareholding in NSE listed universe.
In FY22 and FY23, FII sold stocks worth ~₹140,000 crore (one of the highest-ever seen) and ~₹37,000 crore, respectively, but domestic markets returned positive returns both years. Growing retail and DII participation has kept the markets buoyant despite consistent FII selling in the past few years.
This shift can be attributed to several factors, including increased financial literacy, technological advancements, and stable economic growth and political landscape.
Net inflows (the aggregate value of stocks bought minus the aggregate value of stocks sold) in NSE’s cash segment used to be negative till the pre-COVID era (till FY19). Post COVID, net inflows by retail investors have consistently been positive.
Source: NSE EPR; *Note: Individual investors include individual domestic investors, NRIs, sole proprietorship firms and HUFs.
What does it mean for investors? Retail and DII sentiments and consequently flows have become one of the key measures to track overall sentiment in the markets and not just FII flows.
##Key risks This enthusiastic retail participation can largely be attributed to the continuous bull market witnessed in the domestic markets. If market trends reverse, or for that matter, even move sideways, retail confidence could start to weaken.
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