Interesting shift is underway in the composition of flows into equity market. Domestic flows have been on a second fiddle to FIIs for long. This is set to change in the coming months with domestic money expected to get its fair share of dominance. Multitude of factors have miraculously come together to aid this catharsis, so to say. Not least among them is the shifting trend in the household savings from physical to financial assets on weakening outlook for both gold and real estate prices. Gradual shift from informal to formal economy on GST, Digitization and DeMon (besides stronger benami act) would further accelerate this trend.
Early signs of such a shift are already here. Recent data on mutual fund inflows in the month of Nov and Dec (ref below chart) shows strong evidence to this emerging trend.
The rapid recovery in the Indian indices over last few weeks is largely on account of this phenomenon of shifting strands in the savings pattern. In earlier occasions, when FIIs selling surged, market’s weakness prolonged for a painful period. It made a comeback only when FII-buying resumed with greater gusto. But, not this time. Though intensity of selling has come down, actions continue to be muted on the FIIs front. That has not stopped the markets from recouping all the losses since 8th Nov. The credit for this feat, of course, goes to the dazzling domestic flows, as is evident in the above chart.
We will see more of this in the coming months. For value investors who had hoped for longer period of lull, this quick recovery has put a spanner on their nibbling plans. With valuations on the rise again, hard times are back for investors waiting on the sidelines for attractive levels.