India welcomes equity investments as local market gains

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WSJ.com: Markets

NEW DELHI – Indian stocks have risen faster than any other major market in the world this year, attracting millions of local investors to invest their savings in stocks, which further energizes the market.

Indian markets were closed on Friday for a public holiday. On Thursday, India’s 30-stock benchmark, the S&P BSE Sensex, rose 28% this year and the Nifty 50 index 31%, with both closing at record highs. In contrast, the broader MSCI Emerging Markets Index lost around 1.9% over the same period, while the S&P 500 gained around 18%.

The bull market is accelerating decades of change in the way Indian families, historically big savers, invest. Household savings “are shifting from cash, gold and real estate to market instruments, including debt and equity,” said Nilesh Shah, executive director of Kotak Mahindra Asset Management Co., an asset manager.

As part of this transition, many Indian private investors are using mutual funds for the first time. Many also venture directly to the stock exchange to bet on individual stocks, often using smartphone trading apps.

Two new mutual funds launched in June and August raised approximately $ 1.9 billion and $ 1.3 billion, respectively. Both count, according to data from Value Research India Pvt. among the five largest new fund offerings in Indian history. One is a stock fund; the other has the flexibility to buy both stocks and bonds, but intends to invest primarily in stocks.

Raj Kumar Sarath Chandra Bose, 40 years old, bought his first equity fund in September based on suggestions from investor groups on Facebook and Instagram.

In the past, he said he had invested in bank and postal deposits, but now they have low interest rates. Mr. Bose, who is from a small town in the southern state of Tamil Nadu, initially invested Rs 26,000, the equivalent of about $ 347, a month in two stock funds.

“After 10 years it will be useful in my daughters’ education,” said Mr. Bose.

Over the past decade, millions of investors like Mr. Bose have invested in equity and pension funds through Systematic Investment Plans (SIPs). These plans regularly withdraw money from bank accounts and put the money in a fund.

Monthly SIP recoveries hit a record high of $ 1.4 billion in September, according to the Association of Mutual Funds in India. According to the association, the number of investment fund investors has doubled to 24 million in the past four years.

In general, local investors have bought $ 9 billion net worth of equity mutual funds since March after months of selling their holdings.

Meanwhile, online trading apps that enable individuals to buy and sell individual stocks as well as funds have brought millions of new investors to the market.

Between April and July, around 5.1 million new investors were registered on the National Stock Exchange of India Ltd., one of the two major stock exchanges in the country. In comparison, there were 2 million new registrations in the same period of the previous year.

Pedestrians pass the Bombay Stock Exchange in Mumbai earlier this year.


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punit paranjpe / Agence France-Presse / Getty Images

In the past, mutual funds in small towns were mainly sold through distribution outlets. But with smartphones with fast mobile broadband becoming so prevalent, retail investors no longer have to rely on agents to buy stocks and funds.

“The mobile phone is basically taking the market in hand and making it easy for them to invest,” said Deven Choksey, general manager of brokerage firm KRChoksey Shares and Securities Pvt.

The market recovery is underpinned by increasing confidence in India’s growth prospects as the economy reopened and recovered from a devastating wave of the Covid-19 pandemic in April and May.

At least half of India’s 1.4 billion people have received at least one dose of a Covid-19 vaccine and around 19% are now fully vaccinated. Moody’s Investors Service estimates that India’s economy is likely to grow by 9.3% in the current fiscal year, which runs through March next year.

“Covid is history from a markets perspective,” said Prashant Khemka, founder of Singapore-based White Oak Capital Group, which manages $ 5.5 billion in Indian stocks.

Both individuals and institutions in India are turning to equities because of “the prevailing low interest rate policies and unattractive returns on traditional asset classes such as time deposits, gold and real estate,” said Gautam Duggad, head of research at brokerage firm Motilal Oswal. Institutional Securities.

The emerging market is also fueling a boom in initial public offerings, including some from fast-growing tech startups. Oravel Stays Ltd., which operates the Oyo hotel brand and is almost half owned by the SoftBank Group corps

Vision Fund, recently filed a prospectus for an initial public offering of $ 1.1 billion.

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The domestic buying wave is strengthening Indian mutual funds and insurers, which in turn now hold a larger stake in the broader equity market. According to Prime Database, a research firm in New Delhi, Indian institutions held around 27% of the free float of companies listed on the National Stock Exchange at the end of June, up from 22% seven years earlier.

India is like the US in the 1960s, when mutual funds, insurers and pension funds quickly amassed assets and put them into stocks and bonds, said Mr. Choksey, the broker manager.

He said only a small part of the Indian population has invested in the stock market so far.

“We have only just started the journey and only after that can we achieve higher numbers,” he said.

Write to Shefali Anand at shefali.anand@wsj.com

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