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Growing SIP - Formidable source of domestic liquidity

ICICI Securities 12 Jan 2022

What’s Buzzing?

Inflows into the domestic equity markets through systematic investment plans (SIPs) in equity mutual funds have grown significantly in the last few years. The inflows have crossed Rs 1.14 lakh crore in calendar year 2021. The stable and consistent inflows through retail investors have become a formidable source of domestic institutional liquidity. Historically, flows from foreign institutional investors were the major determinants of the direction of the equity market. With growing consistent flows from domestic retail investors, global liquidity shocks are likely to have a lesser impact on Indian equity markets.

Context:

Foreign institutional investors have sold shares worth around Rs 80000 crore in the last three months of 2021 from October till December. Yet, headline indices are up around 24% for the year. On the back of consistent inflows, domestic institutional investors absorbed the selling by the foreign institutional investors.

The monthly run rate of inflows through mutual fund SIP has crossed Rs 11000 crore in November 2022. The number of SIP accounts has grown from 3.7 crore in March 2021 to 4.9 crore in December 2021.

Our Perspective:

There is an increasing evidence of growing maturity among retail investors in the last few years. Apart from continuing with their regular investment through SIPs despite market volatility, retail investors were also seen as net buyers during sharp market falls. During the Covid-19 induced market fall in 2020, inflows into equity mutual funds were highest during February 2020 and March 2020 with total net inflows in those two months at Rs 22500 crore. With the popularity of SIP as an allocation tool having gained universal acceptance, the monthly and annual run-rate is likely to be in a structural uptrend providing the much needed strong domestic liquidity source to Indian equity markets.

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