Published on April 10, 2024 at 5:14:35 AM

Indian Equity Markets in the December Quarter

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The huge push of domestic capital sourced from retail investors in particular who lapped on to the mutual funds and multi-channel flow of capital from high net-worth investors (HNIs) who have shuffled their asset holding away from real estate, especially after demonetisation, has increased the weight of Domestic Institutional Investors in equity markets in India.


This is not to suggest that global factors do not still affect local sentiments. Whether it is the US Fed monetary policy decisions and its impact on how foreign investors rearrange their asset allocation, or geopolitical tension in Europe or Middle East, given the impact on oil price, both global and domestic factors determine the course of equity markets in India.
 

The latest data of the stock holdings of different categories of investors only points to how domestic money is also gaining weight in Indian equity markets.
 

Stake of MFs in listed companies rose to an all-time high
The share of domestic Mutual Funds (MFs) in companies listed on NSE rose to an all-time high of 8.81% as on December 31, 2023, from 8.73% as on September 30, 2023, as per PRIME Database Group.
 

The share of retail investors (individuals with up to Rs 2 lakh shareholding in a company) decreased marginally but the share of HNIs or individuals with more than Rs 2 lakh shareholding in a company increased slightly to 2.06% as on December 31, 2023. The combined retail, HNI and MF share, reached an all-time high of 18.44% as on December 31, 2023. In contrast, the share of FIIs declined to 18.19%, down from 18.40% as on September 30, 2023
 

One way to gauge this is by tracing the set of companies where the different investor groups have increased their stake and the average change in share price of those stocks during the period.
 

To be fair, this is a short-term performance and this may not be replicated consistently over a longer period. That said, it does provide an insight on who has been above the crest in their stock choices.
 

We looked at the quarterly statistics to get a report card of different investor groups active in the country.
 

Looking at the broad set of investor categories, where we factor out promoters’ stakes, we see FIIs and lately HNIs who have been more successful in placing their bets.
 

Based on a set of around 1900 companies listed on NSE’s main board for the quarter ended December 31, 2023, the 718 companies where FIIs hiked stake, the average share price moved up 20.01% last quarter. As against this, the benchmark Nifty 50 index rose just 10.06% last quarter.
 

Of the 621 companies were domestic institutional investors (DIIs)- domestic mutual funds, insurance companies, banks, financial institutions, pension funds, Non-Banking Financial Companies (NBFCs), etc- upped their holding, the share price rose 16.18%. 
 

If we look at individual investors, of the 1,007 companies where retail investors hiked their holding, the average share price increase was pegged at 13.99%. 
 

Of the 758 companies where HNIs or  investors with investment of more than Rs 2 lakhs, bought additional shares, the share price went up 18.18%.
 

Among others, private promoters who bought additional shares in their companies (118 in total), the share price of those companies rose 19.98%.
 

This does not mean that just because the stock price of the companies, in which a particular category of investors invested, increased, investors in that category also necessarily earned higher returns.  Suppose the stock price of a company, A, increased from Rs 10 to Rs 20 in the three month period between October and December 2023. This is an increase of 100% in the stock price of the company. You invested in the stock in November when the price of the stock was Rs 15. So the return that you have got at the end of December is 33.3% [(20-15)/15] and not 100%. This return will also be notional and not real. You will realize return only when you actually sell the stock at Rs 20 at the end of December. 
 

Another thing that the above data may indicate is that HNIs or investors with investments of more than Rs 2 lakh were more momentum driven. They went along with the momentum. They invested more in stocks whose prices were rising. 

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