Retail and mutual fund investors proved saviours of the equity markets when foreign portfolio investors pulled out of India in the backdrop of the US Fed persisting with rate hikes in 2023.
In one of the fastest rate hikes campaigns, the US Fed increased interest rates in four equal instalments of 25 basis points each, from 4.50-4.75 per cent to 5.25-5.50 per cent between February and July, before pressing the pause button to salvage economic growth.
Volatile FPI inflows into equity (including the primary market) added up to Rs 1.64 lakh crore till December 21, against Rs 65,906 crore last year. On the other hand, mutual funds recorded net inflows of Rs 3.13 lakh crore till November, against Rs 80,998 crore in the same period last year.
Of the overall MF inflows, equity mutual funds alone accounted for Rs 1.45 lakh crore in the last 11 months of this year, with not a single month of outflow.
Dr V.K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said retail participation stands out this year, both through mutual fund and primary market participation.
SIP inflows in the first 11 months of this year stood at Rs 1.66 lakh crore, and monthly SIPs crossed the milestone of Rs 17,000 crore in November. The steady increase in mutual fund inflows is likely to continue in the coming years, he said.
With a rise in interest rates, FPIs were net sellers to the tune of Rs 34,146 crore in the first two months of this year, and turned net buyers till August. However, they pulled out Rs 39,316 crore in September and October, before pumping in up to Rs 66,314 crore.
Small-caps steal the show
Despite the bellwether Sensex hitting a record high, it was the small-cap stocks that stole the limelight. Inflows in small-cap mutual funds hit a record high to more than double in the last 11 months to Rs 37,178 crore, against Rs 17,551 crore in the same period last year.
Expecting more tailwinds in the coming year, Jitendra Gohil, Chief Investment Strategist, Kotak Alternate Asset Managers, said with inflation cooling off and US Fed rate cuts expected, the outlook for emerging markets, especially India, have improved for the next year, compared to 2023.
“We remain optimistic about India’s domestic macro resilience and expect a furthergrowth surprises in the coming quarters,” he said.
On the corporate front, strong balance sheets and lower probability of recession in the developed markets, suggests there is minimal risk of earnings disappointments, he said.
George Thomas, Fund Manager, Quantum AMC, said the equity market this year defied the consensus view of moderate equity returns, with the Sensex delivering 19 per cent returns, while the BSE Mid and Small Cap indices returned 45 per cent and 47 per cent, respectively, he added.
“While it seems that the market has priced in most of these near-term positives, we expect Nifty to return high single-digit gains in 2024. Risk-reward ratios favour large-caps over the mid and small-caps currently, and PSUs still have the potential to outperform,” he said.
