Atmanirbhar equity markets

By the standards of a decade or so ago, the Sensex should have been down to perhaps 30,000-35,000 points by now and the Nifty would definitely be below 10,000. Many Indian equity investors would have been wiped out and many others would have been scared off for years. The outflow from the capital markets would have scuppered many a corporate plan for raising equity and would have generally brought down a pall of gloom over Indian businesses for a few months or perhaps even an year or two. There's nothing strange about this scenario, we've all seen it several times. For example, after the dotcom crash of 2000 and then again in the aftermath of the global financial crisis of 2008.

So you're probably wondering why I'm saying that the disaster scenarios of 2000 and 2008 could have been repeated but aren't? Simple - the balance of power between foreign and Indian investors has changed. In the earlier crashes, the foreigners ran away with their money and the Indians were just not investing enough to be a good counterweight. This is not just about the volume of the money - the expectation that the FIIs drove the markets itself made them all-powerful. Now, the balance of power has flipped.

This is not just a loose impression I have. Here's some data analysis that a researcher at Value Research Stock Advisor came up with: In the year from January 2008 to February 2009, FIIs pulled out Rs 59,669 crore while domestic institutions invested Rs 73,304 crore and the Sensex fell 56 per cent. In the more recent past, the examples are of a very different kind. From February 2018 to January 2019, FIIs pulled out Rs 50,671 crore while domestic institutions invested Rs 1,10,312 crore and the Sensex was basically flat (+ 0.81 per cent). Now, since October last year till a couple of days back, the FIIs have pulled out a huge Rs 1.3 lakh crore while domestic investors have counterpunched with an inflow of almost Rs 1.5 lakh crore! The result - markets are down just 10.6 per cent.

If this had been 2008, this kind of outflow would have not only crashed the markets for a long period, it would have also scared off whatever little buying power the domestics had. Given the scale of the fear, uncertainty and doubt that prevails around the world today, the stock markets have hardly dropped at all. After two decades of being the dominant drivers of the pace and direction of Indian equity markets, FIIs now play second fiddle to Indian money. Normally, when the going is good and everyone has the same outlook, this hardly matters. However, in times like the current one, the revolutionary nature of this change really comes through.

Why has this happened? The most sustainable reason is that the nature of the inflows in the Indian markets has changed. This change rests on three pillars of support, represented by this alphabet soup: NPS, EPFO, SIP. A few years ago, when the Indian equity markets were full-time slaves of FII inflows, none of these existed in the form that they do. Between these three, the inflows into the Indian domestic markets are in the region of 1.75 lakh crore. However, it is the quality of this flow that is even more important than its quantity. This money is sustained and long-term. In the case of the EPFO and the NPS, it is practicality guaranteed to be not just sustained but increasing at a predictable rate. It will also never (that's a strong word, but entirely justified) turn into an outflow. Such phenomena are common in other markets but wholly new in India. The 'mutual fund sahi hai' campaign has boosted equity SIP inflows to the scale of around 10,000 crore a month. This money doesn't seize easily and does not go out easily either. Essentially these three sources have led to deeper democratisation of equity investing in India, and the process has barely begun yet.

In many other fields, 'Atmanirbhar Bharat' will take a period of hard work and unrelenting effort. We should all be happy that in the equity markets, it's already here.

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