Winds Of Change

Since 2014, we have seen great transformation the way individual investors were investing in the stock markets. There was a sharp institutionalization of investments that people did. Initially, what looked like a small wave turned out to be a tsunami. 

The inflection point seemed to be in 2016 post demonetization which brought lot of people and money in the financial system. This money was finding tax efficient routes, which made Mutual Funds a preferred destination. The ease of technology and the comfort of Systematic Investment Plans (SIPs) just added to the party. 

In 2017, the Long Term Capital Gains (LTCG) was brought in. But this did not deter the investors, who were enjoying the upmove in the market. The SIPs run rate which was near 3500 crores a month in 2015-16 moved to 5000 crores in 2016 – 17, 6000 crores in 2017 – 18 and now 8000 crores a month.

The weak markets of 2018 and sideways market of 2019 also did not change the course for these investors. Interestingly, whenever there were sharp dips the lumpsum investment increased. The MF Equity AUM soared, by end of 2019 it reached near Inr 9 trillion, of this SIP inflows were nearly Inr 3 trillion. All this indicated a mature market shaping up.

However, suddenly things changed this week when the Mutual Funds number were released by AMFI, last week. The June numbers looked very different from what they generally are. The net inflows into equity schemes were just around Inr 250 crores, down from near Inr 8000 crores on an average. To make things more interesting the SIP numbers were still intact at near Inr 8000 crores. So, what happened?

Few things that one can say from the top of the head;  due to financial crunch at individual and corporate level there was redemption from equity schemes or for the sort of market movement which we have seen in last couple of months this could be profit booking or with businesses going slow, heavy layoffs, people forced to take leaves and so on, people would have decided to start trading on their own then to bend on fund houses; net – net redeem money and use the same for trading.

Well, to some extent the last one seems like a possible option. Few factors and data point which are indicating that are:

• Lot of discount brokerage services which offer broking services on per trade basis. This reduces the cost transaction and induces volumes.
• The total number trades which were pushed through mobile phones were 23% of the total volumes in June month.
• The share of non-institutional volumes as a percentage of total volumes has moved up from an average number of 45% to near 68% in June month. Interestingly, this is happening at a time when overall cash market volumes are rising.
• The delivery volumes as a % of total volumes is shrinking, indicating increased intraday activities. This is typically non-institutional in nature.

All these are clearly pin pointing towards a change in trend. The winds of change have started blowing, whether it’s a one off event or here to stay that time will unfold.

Happy Trading!!!

Cheers.