The Indian equity market has experienced a significant shift, as Foreign Portfolio Investors (FPIs) reduce their holdings, driving their ownership in Indian equities to a 13-year low. However, this outflow has been countered by a surge in investments from domestic mutual funds (DMFs), which have reached record high ownership stakes. A recent National Stock Exchange (NSE) report sheds light on these evolving ownership dynamics within India Inc.
Foreign Portfolio Investors Exit:
According to the NSE report, FPIs have significantly reduced their holdings in Indian equities, with their share in NSE-listed companies falling to 17.4% in the December quarter. This marks the lowest FPI ownership level since 2011. These investors have pulled out a substantial $11.9 billion from the Indian market, primarily focusing on large-cap stocks. As a result, FPI ownership in the Nifty 50 index also reached a multi-year low, reflecting the broader trend of foreign disinvestment.
Surge in Domestic Mutual Fund Investments:
While FPIs have been exiting, domestic mutual funds have stepped in to fill the void. Fueled by Systematic Investment Plan (SIP) inflows, DMFs have significantly increased their investments. In fact, their share in NSE-listed companies has reached a record 10%. Of this, 8.1% is attributed to active funds, while 1.8% is from passive funds.
The December quarter saw domestic mutual funds injecting a record Rs 1.5 lakh crore into the market. This increase underscores the growing influence of DMFs in shaping the market’s future. As FPIs continue to reduce their holdings, the role of domestic funds has become more crucial in maintaining market stability.
Rise in Retail Investor Participation:
The report also highlights a significant shift in retail investor participation. Direct ownership by individual investors increased, reaching a 70-quarter high of 9.8%. Combined with their investments through mutual funds, individual investors now hold 18.2% of the market capitalization—surpassing FPI ownership for the first time since 2006. This marks a pivotal moment in the Indian equity market, where retail investors are playing an increasingly prominent role.
Decline in Promoter and Government Ownership:
In contrast to the rise of domestic and individual investors, promoter ownership has seen a decline, particularly in government-held stakes. This has been part of a broader trend of disinvestment by the government in public sector companies. Furthermore, the report observes a shift in portfolio allocation by both institutional and individual investors, with a notable move away from Nifty 50 companies toward mid- and small-cap stocks. This shift reflects the relative outperformance of these smaller stocks and their growing appeal.
Conclusion:
The ownership dynamics within India Inc. are evolving, and the growing resilience of the domestic market is evident. Domestic mutual funds and retail investors have become key players, absorbing the selling pressure from foreign investors. As FPI ownership continues to decline, the increasing participation of domestic investors signals a shift toward a more self-sustaining equity market in India. This trend is likely to continue as both SIP inflows and individual investor interest strengthen, providing a cushion against global uncertainties and fostering long-term market growth.
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