Equity investor community has been growing & becoming more powerful with each passing day. Experts have been warning on historical valuations & a possible bubble yet index continues to defy them year after year since Modi came to power. What has changed & why market continues to go up, will it keep on going up like this? Let’s try to find out.
Fundamental shift: There has been a fundamental shift in investment patterns in India post 2013. During 2013, people realized that golden days of real estate are over since new property prices were more than average buying capacity of people. Gold had also started to retreat after touching 33k /gram in 2012. But salaries were still coming month on month and soon people had lesser investment options than earlier. At the same time, Modi government came to power & stock market jumped from 20k to 28k in 6 months. This was perfect time to attract eyeballs of real estate & gold investors to something else which was going up like a rocket. Result was a huge number of new demat account & mutual fund folio creations. This was a fundamental shift in Indian stock market penetration which triggered an avalanche of new money rushing towards stocks.
Arrival of 4G: Lack of information was a key reason why retail investors were not much involved in stock market. As a habit, we love to grab bites from discussions in wedding parties or some other event gathering. People like to boast about their smartness by telling stories around money created from real estate deals. Envy is a great driver and it ensured huge real estate participation. After arrival of 4G, situation changed and now everyone has plenty of information available on their finger tips. Broadband was there earlier as well, but it had mobility constraints. Now everyone can compare & analyse variety of investment options available before them. It is resulting in informed decision making from new equity investors.
Aadhar enabled paperless transaction: Aadhar has made investment go paperless. While opening of new demat account is still a lengthy process but investment in mutual funds have become totally digital, thanks to aadhar. Reliance Jio is a perfect example of the power of aadhar. The pace at which Jio grew ows a lot to aadhar based service activation. Going forward, with more digitization, the ease of transaction will help to get more investors in the market.
FII are no longer single dominant power: With the arrival of domestic retail investors, our dependence of FII has largely reduced. This was not factored in by most market experts when they started calling for a market dip. Historically, FII are known to pump & dump money in stock market. They keep on hopping from one geography to another by booking profit. It is due to their nature & dependence that earlier experts were led to believe that market crash is imminent but it never really crashed long enough in last three years.
Arrival of sticky domestic investors: There is a new brand of committed investors entering into the market. EPFO has been investing 5% of its assets in equities & it plans to raise it to 15%. So far EPFO has pumped in more than 8000 crore rupees in the market during last year. Apart from this, investment coming via SIP route in mutual funds is at more than 9000 crores a month, which is triple the amount that was being invested in last year around 3000 crore. Story does not end here, NPS also invests a lot of money from its various schemes into equities. This is something unprecedented. Never in history we had such active participation from domestic sector. Most likely these investors are going to continue pumping money irrespective of whether market is up or down. This protects market from sharp & longer period of downtrends. This is why we have not seen any prolonged downtrend in recent times. Before 2014, occasionally market were not performing and giving zero to negative returns for a whole year.
What lies ahead? Short term – we don’t know as there are lot of factors influencing trend in short term. However long term uptrend is definitely there and index will keep on touching new highs 40k, 50k and what not. We believe the biggest of all bull rally is yet to come as more and more investors join us. As of now, less than 9% of population invests in equities via all sources (including LIC). In US or UK, this number is as higher as 60% & goes down to 0.1% in countries like Philippines. As this number goes up in India, the sheer power of population will keep index ticking. The numbers are huge and that will ensure glory days for Indian market. Obviously, there will be lots of hiccups here & there. Earning are one such concern but we believe with right policies earning will come back sooner or later. Also, market P/E will command a little premium as compared to historic valuation levels and with time this will become a new normal. So definitely, it is going to be a roller coaster ride but if you have your seat belts on, then no need to worry.
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