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Domestic Equity Flows - Retail Investors: Getting stronger and smarter

Indian retail investors are getting smarter and matured as equity investors. Retail investors now don’t get swayed away by the market volatility and use it to their advantage to accumulate at lower levels. Domestic liquidity is not only getting stronger but also smarter.

Over the last few years, domestic mutual fud investors have invested higher amount when there is a fall in equity markets. On the other hand, whenever there is a rally in equity markets, investors have turned cautious and invested lower amount at higher levels.

In last 3 years, there have been 2 major market fall and one minor fall. One of the major fall was during COVID pandemic (Feb/March 2020) and the other major fall was from the all-time high level in October 2021 (October 2021 to June 2022). The minor fall was during the period of the period of June to July 2019. During all these market fall period, investors have put in higher amount as compared to pre-fall period. On the contrary, whenever markets have continued to rally, investors have turned cautious at higher levels and invested lower amount.

Retail investors buy low…

  • June 2019 to August 2019: Nifty 50 index fell by around 8% => Average monthly inflows into domestic mutual funds increased to Rs 8300 crore from Rs 5000 crore in immediate previous months.
  • COVID-19 pandemic induced market fall in the year Feb/Mar 2020 => Monthly inflows in domestic mutual funds almost doubled to Rs 8500 crore from Rs 4500 crore.
  • Fall from all-time high levels in October 2021 => average monthly inflows from November 2021 to June 2022 increased to Rs 15500 crore as against inflows of Rs 3000 witnessed pre market fall period of August 2021 to October 2021. 

… sell high

  • Just before COVID-19 pandemic induced fall in February 2020 => Inflows were lower at an average of Rs 4500 crore per month as markets had rallied around 11% from the lows of 11000 on Nifty 50 index level in August 2019 to 12200 levels in January 2020.
  • Markets continued to rally post COVID induced fall in 2020 => investors turned net sellers (outflows of Rs 5850 crore per month from July 2020 to February 2021).
  • Currently, since last 3 months from August 2022 to October 2022 => As markets have moved up and trading near all-time high levels, inflows have reduced to an average of Rs 5900 crore per month from Rs 15500 crore (average during November 2021 to June 2022). 

While this approach of lower investment at higher levels have been rewarding, investors got it wrong during the recovery in the year 2020 and 2021 as markets continued to rally while investors booked profits early into the recovery (sold off early since July 2020 while Nifty continued to rally till first major correction in February 2021).