RRR exit, hmmm. Brexit, meh. Shrugging off plenty of bad news, the Sensex hit an 11-month high this week. What’s going on? The story for India is the thickening of the retail equity pipeline, not directly in stocks, but through institutions such as pension funds and mutual funds. Sustained flows of retail money is coming in. And it is coming in a staggered manner. Indian household money has traditionally been in real assets such as gold and real estate, in bank fixed deposits (FDs) and to some extent in life insurance policies. The organised sector contributed to their provident fund, which again went into bonds and other fixed return paper. Think about the change in our own investing behaviour—we swore by FDs and Life Insurance Corporation of India policies, but are now die-hard SIPpers (investors into systematic investment plans of mutual funds). What changed?
The Indian equity market used to be beholden to two large sources of money—foreign institutional investors (FIIs) and the machinations of some big bull who was scamming the market. Indian stocks would rise and fall as hot money entered and exited the market. Various scams led to regular blow-outs and loss of investor confidence. But there is a fundamental shift in the Indian stock market now. Three changes over the past decade have changed the nature of inflows into the market.
