Saturday, April 1, 2017

Domestic Equity Investments Rs 63,000 crore per year (~$10B).

To give you a scale of this money, during 2016, the net investments that foreign institutional investors (FIIs) made in India was Rs 20,568 crore. In the year before that, this number was Rs 17,808 crore. Of course, earlier, there have been years with much higher FII investments, but at this point in time, domestic individual mutual fund investors far outweigh FIIs.

Note that unlike FII money, or even the episodic investments in equity by domestic individual investors, SIP investing is steady. Whether the market rises or falls, investors continue with their SIPs. And that's not all in terms of guaranteed inflows - there's the EPFO, too, and the NPS. The EPFO is now investing in equities at a rate of Rs 13,000 crore a year. NPS data is harder to come by because of the diversity of plans on offer but it should be at least Rs 2,000 crore. Obviously, both these are even steadier than SIPs and will also grow steadily. The increasing work force and salary increases will ensure that.

So we now have a base of steady domestic equity investments of a minimum of Rs 48,000 crore + Rs 13,000 crore + Rs 2,000 crore = Rs 63,000 crore per year. This is a historic turn of events for Indian stock markets, and it's something that affects equity investing profoundly.

Contrary to investors' first reaction, it turns out that large steady inflows may be a problem disguised as a blessing. It will take constant effort to do well in the coming years.