Domestic funds led bull rally that took Sensex to 75K level

IT’S DOMESTIC institutional investors (DIIS), led by insurance companies and mutual funds, which led the bull rally that took the benchmark Sensex to the 75,000 level on Tuesday.

DIIS have bought stocks worth Rs 1.12 lakh crore since January this year, aided by strong inflows into equity schemes of mutual funds. On the other hand, foreign portfolio investors (FPIS) pulled out Rs 53,145 crore from the stock market (excluding the IPO market investment) since January this year.

Whenever there was heavy selling by FPIS, which was expected in response to the spike in US bond yields, the market was not largely impacted since it was neutralised by DIIS and individual investor buying. “The FPI strategy of pushing the market down is not working since their selling is countered with buying by DIIS and individual investors,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

In fact, DIIS were leading the bull rally in the last three years when the Sensex shot up from 50,000 to the 75,000 mark. FPIS were forced to play the second fiddle during this period.

Mutual funds played a major role in the sustained rally in the market. Inflows into equity mutual fund schemes increased

by 23 per cent to Rs 26,865.78 crore on a net basis in February, with thematic funds receiving the highest flows, data released by the Association of Mutual Funds (AMFI) showed. In January, net inflows into equity mutual funds stood at Rs 21,780.56 crore. The contribution from the systematic investment plan (SIP) rose to an all-time high of Rs 19,186.58 crore in February 2024 as against Rs 18,838.33 crore in January.

Last month, AMFI wrote to mutual fund houses to take measures to protect the interest of investors of small and mid-cap schemes, which have seen heavy inflows in the recent past.

LIC, the biggest investor in the stock market which puts around 25 per cent of its assets in stocks, reportedly made a profit of Rs 39,000 crore in the December quarter.

As per the latest ownership data in the Indian market, 1618 per cent is owned by FPIS and around 20 per cent by DIIS. The DII stake is expected to rise further in the coming months unless FPIS make huge investments in Indian stocks in the coming months. The current domestic inflows from mutual funds, insurance, pension, PMS and AIF are to the tune of Rs 3 lakh crore per year. These appear to be structural in nature at least for the next 5-10 years, according to a fund manager.

Fund managers are bullish about the Indian markets. To double the country’s GDP by 2030 without excessive leverage, India would need additional equity capitalisation of Rs 2.5 lakh crore every year for the next 7 years. Secondly, the similar size of equity capitalisation is also desired from an investor perspective, considering the anticipated domestic inflow to the capital market. Looking from the investor’s perspective, ensuring the vibrancy of our capital market is crucial, given our high promoter holdings and anticipated inflows, according to Pantomath Financial.