MFs Pump Rs 1.8 Trillion Into Markets

Domestic institutional investors pumped Rs 2.3 trillion into equities during H1 CY24.
Of this, mutual funds contributed 80%.

Indian equities posted their best half-yearly performance of the past three years in January-June 2024 (H1 CY24), with the National Stock Exchange Nifty 50 and BSE Sensex surging 10.5 per cent and 9.4 per cent, respectively.

During this period, the BSE Midcap and Smallcap indices outperformed their largecap peers with gains of 25 per cent and 22 per cent, respectively.

The strong rally in equities in H1 CY24 was led by stocks in the automobile, capital goods, telecom and public sector undertaking sectors.

These sectors, analysts said, reported better than expected earnings for the March quarter (Q4FY24) and attracted domestic investors, who pumped nearly Rs 2 trillion into the Indian equity markets.

The BSE Realty index was the top performer in H1 CY24 with a gain of 40 per cent, while the power and auto indices rallied 37 per cent and 36 per cent, respectively.

As many as 10 Nifty 50 stocks outperformed the benchmark as well as broader indices by surging over 30 per cent in H1 CY24.

Mahindra & Mahindra zoomed 66 per cent, followed by Adani Ports and Special Economic Zone (44 per cent), Shriram Finance (43 per cent), and Bharti Airtel, Bajaj Auto and Power Grid Corporation (40 per cent each).

While there is lack of valuation comfort in a majority of small and midcap (SMC) stocks, largecap stocks, according to G Chokkalingam, founder and head of research at Equinomics Research, still have the same comfort.

Nifty trades at around 21.5x its FY25E EPS of Rs 1,093 and at 19x its FY26E EPS of Rs 1,249. Several pockets of the SMC segment are overvalued, and also the segment as a whole is seeing a historic rally for a fourth consecutive year.

That said, the medium-to-long-term ‘India stock market story’ remains intact.

Healthy GDP growth, entry of new investors, large inflows into the domestic mutual funds and robust growth in GST and direct tax collections augur well and are likely to keep investors interest in the markets alive, Chokkalingam said.

Meanwhile, as many as 37 midcap and smallcap stocks have seen their market value more than double in H1 CY24.

Of these, Waaree Renewable Technologies has zoomed 397 per cent, while Shakti Pumps, Cochin Shipyard and Transformers and Rectifiers (India) (TRIL) have rallied between 210 per cent and 260 per cent.

The markets, according to V K Vijayakumar, chief investment strategist, Geojit Financial Services, are likely to remain bullish in the near term despite valuation concerns.

A good thing, he believes, is that now the upmove is being led by fundamentally strong largecaps in sectors like banking and telecom.

Recently, Reliance Industries, too, has climbed the bull bandwagon. That said, the rise in US bond yield can perhaps trigger some large FII (foreign institutional investor) selling in the coming days, putting brakes on the rally temporarily.

So long as the massive domestic liquidity support to the markets continues, there are no potential triggers that can cause a sharp correction, he said.

According to available data, domestic institutional investors (DIIs) have pumped Rs 2.3 trillion into the Indian equities during H1 CY24. Of this, mutual funds have contributed 80 per cent, or Rs 1.8 trillion.

DIIs inflow, data shows, is almost three times higher than H1 CY23, when they had made a net investment of Rs 86,568 crore (Rs 865.68 billion) in equities.

However, foreign portfolio investors (FPIs) were net sellers to the tune of Rs 4,557 crore (Rs 45.57 billion) during H1 CY24.

Corporate earnings outlook remains extremely buoyant and money is chasing equities. Valuations, however, remain challenging.

The markets are likely to remain strong amid intermittent corrections.

Assembly elections and regulatory changes, if any, in the derivatives segment can have a short-term impact on the sentiment.

While investors are always there in the markets, FIIs who are traders are likely to return on fear of missing out (Fomo), said Deven Choksey, managing director, KR Choksey Securities.

Feature Presentation: Ashish Narsale/Rediff.com