India's Retail Investors Gorge On Mutual Funds To Satisfy Stock Cravings
Retail investors ploughed $50 billion into equity markets through mutual funds against $25 billion directly in FY23, says CLSA.
The share of household investments in stocks nearly doubled during the pandemic, driven by retail inflows into direct equities. That exuberance gave way to caution as the bulk of inflows from this category came through mutual funds in the last two years.
Over the past two years, individual investors have invested $50 billion in equity markets through mutual funds and $25 billion through the direct channel, according to a CLSA report.
The spike via mutual funds marks waning exuberance after millions of new retail stock buyers emerged during the first two lockdowns to contain the Covid-19 pandemic. That accelerated the financialisation of savings over the past decade, led by increased equity allocation.
Over the past five years, CLSA said, individual ownership of BSE 500 companies has doubled to Rs 21 lakh crore. "[Yet] retail inflows and trading volumes moderated in FY23 ... but flows into asset managers continue unabated."
Retail investors ploughed Rs 49,200 crore into equities in FY23, a drop from Rs 1.65 lakh crore a year ago. Their share in BSE 500 companies fell 30 basis points to 8.7% because of subdued macroeconomic conditions around the world and geopolitical uncertainty, CLSA said.
Individual investors have not only invested less, their overall share of trading volume has dropped from a peak of 45% in FY21 to 37% in FY23.
The number of active clients in the NSE was also down 9% year-on-year in FY23 to 33 million.
On the other hand, mutual funds have seen a twofold rise in investors, to 38 million in FY23 from FY19, according to CLSA. Equity assets under management have grown at an annualised rate of 25% over the past seven years, with around 9–10% coming from systematic investment plans, 12% from mark-to-market gains, and 5% from lump-sum inflows, CLSA said.
SIPs have risen month on month from close to Rs 8,000 crore in Jan 2021 to over Rs 14,000 crore by April 2023, despite periods of high volatility.
Mutual funds in FY23 have shed risk factors (selling high beta and value stocks) with the exception of buying size risk in the form of small caps, as per an ICICI Securities report. This may explain the shift to mutual funds from direct investment by retail investors.