The Indian mutual fund (MF) industry currently manages assets worth over ₹50 trillion. However, the enthusiasm for retail investment in equities has yet to face a significant stress test. Given the stretched valuations, the possibility of sharp fluctuations cannot be discounted, particularly as investors make pre-budget and pre-election investments.
Even as high valuations make many big investors in Indian markets wary, there seems to be no stopping retail investors. In December, investments made through systematic investment plans (SIPs) rose to ₹17,610 crore from ₹17,073 crore in November. Also, the total assets under management of India’s mutual fund industry crossed ₹50 trillion—the last ₹10 trillion of which were added on in just over a year, compared to almost half a century that the first ₹10 trillion took.
Rising Participation of Retail Investors
The rising investor participation deepens India’s financial markets and offers a cushion against volatile inflows from abroad. Their real test, however, will come if markets drop sharply. How retail investors respond in such an event would reveal just how stable these flows are. For a long time, they haven’t really been tested, with stock indices on a one-way climb.
Market Speculation and Economic Fundamentals
With our economic fundamentals strong, the broader uptrend might be intact, although stretched valuations in pockets could invite bouts of profit-taking. Flows in the first week of January show foreign investors rushing to buy Indian shares. This may be part of an anticipated pre-budget or pre-election rally, which may mean high levels of speculation.
