During 1990s, stock market was considered as a rich man’s investment option & common man was staying out of whimsical world of “share bazaar”. It was often believed that share investment is similar to gamble & good people should stay away from it. Scams like Harshad Mehta & UTI 64 only consolidated that belief. However, things have changed since last decade & domestic participation has gathered pace in last 3 years. However, the question remains if it will continue in future & how much it can impact Nifty in coming years? Let’s try to find out.
We took last 10 years data for FII (Foreign Institutional Investor), DII (Domestic Institutional Investors) & Nifty 50 and plotted them to understand how these flows are impacting Nifty.
This graph gives us some interesting pointers:
- FII & DII seldom act in tandom: As we can see that barring 2009 & 2017, FII & DII have always followed opposite directions (i.e when FIIs bought stocks, DIIs were selling & vice versa). It can be due to the fact that FIIs are mostly professionally managed money and they are the first to enter the market & first one to leave. On the other hand, DII sentiments are driven by retail investors via mutual funds who take decisions after event has passed.
- Three interesting years (2015, 2016 & 2017): Our dependence on FII inflow or outflow has been largely offset by DII flow in last three years due to increased participation from general public. In the absence of DII, Nifty would have fallen back to 6000 once FII left in 2015 & 2016.
- 2018 can be a defining year: Since DII inflows have not stopped since 2015 while FII has moved in & out of market in this period, we believe 2018 can be the real make or break year for FII vs DII duel. Never in history has domestic participation been so consistent and if it continues in the same way and FII decides to join the party, then market will know no bounds. For this to happen, we believe gold & real estate have to remain subdued for some more time.
Retail Penetration of Equities in India is still pegged at around 6 to 7 percent. Based on data available from BSE, there are around 3.3 crore registered investors in India out of 48 crores employed workforce which translates to 6.8% penetration at workforce level. Of course this penetration becomes minuscule if we consider the whole population. This is very low as compared to developed countries like USA or UK where equity participation is more than 60%. So there is a huge catch up to do in terms of domestic participation.
Statewise, Maharashtra tops the list with maximum number of investors, followed by Gujarat. These are again, the only two states with more than 5% penetration when compared to their population (not at workforce level), rest of India lies below 5% penetration bracket.
Top 4 States:
- Maharashtra 22.6%
- Gujarat 14.3%
- West Bengal 6.7%
- Tamilnadu 6.7%
Bottom 4 States & UT:
- Daman & Diu 0.02%
- Andaman & Nicobar 0.01%
- Arunachal Pradesh 0.01%
- Mizoram 0.01%
Large workforce of central, northern & north east India is yet to wake up to the call of equities which leaves huge scope for growth in domestic participation. These states have lower literacy rates & absence of investment culture which is so prevalent in Gujarat & Maharashtra. SEBI has mandated mutual fund companies to invest interest earned from unclaimed dividends (after three years of waiting) towards investor education drives.
Increasing domestic participation is very beneficial to Indian stock market as well as Indian citizens. It provide resiliency to market & helps uplift wealth levels across the country. After-all, it is our money which we spend by purchasing a good or service (even a toothpaste or a soft drink!). By virtue of stock exchange so far, majority of this money was landing in the hands of foreign investors. We are not “anti” foreign investment but Indians must also benefit from it.
We believe with increasing internet penetration, awareness about equities will spread at 4G speeds & next decade will be the golden era of Indian equities. Time to believe in the power of common man! However, this wealth distribution will not be uniform as stock market is an efficient machine of transferring wealth from impatient to patient once. During a bull run like today, one may feel invincible but our capacity to retain new found wealth during bull run is dependent on our patience levels during bear phase. This is where AI comes into the picture to handhold you in bull as well as bear phases in agnostic manner. Read Why AI?
Lastly, we will be releasing both Tiny CAPS & MultiCAP Multibagger reports with our paid subscribers tomorrow. This month’s Tiny CAPS stock is a commodity player, a steel product manufacturer with innovative offerings in prefab steel structure domain. This small cap stock is at cusp of re-rating. Franklin India Smaller Companies Fund has already started buying in bulks from last quarter. Company management is meeting ICICI Mutual fund representatives very soon. We expect good returns as steel prices are recovering in FY18.
We are pleased with our MultiCAP Multibagger portfolio, which rebounded sharply from 27% last month to 38% returns this month. We have 8 out of 10 stocks in our portfolio under buying range. With risk adjusted return approach, this portfolio has got perfect balance for generating continuous return over the years.
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