Retail money is driving quiet exits for seasoned investors
NEW DELHI: In recent years, retail investors have emerged as a formidable force in India’s equity markets, driven primarily by the growth of mutual fund investments through systematic investment plans (SIPs). However, this influx of «uninformed» retail money is inadvertently creating exit opportunities for seasoned «smart money» investors—such as promoters, private equity funds, and multinational corporations (MNCs). While these sophisticated investors capitalize on elevated valuations, they are taking money home, raising concerns about unintended consequences. Could retail money be inflating market valuations to unsustainable levels and crowding out foreign portfolio investments (FPIs)?
The dominance of retail investors is reshaping the landscape of Indian markets. Retail mutual fund flows through SIPs since 2016 amount to ₹9.89 trillion, surpassing the cumulative inflows from FPIs of ₹6.56 trillion. This tidal wave of retail inflows has driven market valuations into uncharted territory, creating a market that seems to be running on liquidity rather than fundamentals.
In just four years, retail assets under management (AUM) in the mutual fund industry have more than tripled, crossing ₹17 trillion. Retail investors now account for 27% of the total AUM in mutual funds. As of August 2024, there were 204 million mutual fund accounts, with 80% belonging to retail investors. While institutional investors such as high-net-worth individuals and banks still hold larger stakes overall, retail investors have gained significant influence in equities.
The retail story extends beyond mutual funds. Direct investments through demat and broking accounts are also on the rise. As of August 2024, there are 171 million demat accounts, with
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