There was a time when Indian markets were totally at the mercy of Foreign Institutional Investors (FIIs). The mood of FIIs was a major sentiment indicator to gauge market strength. And, there was a tendency among the majority of domestic investors to follow in the footsteps of FIIs. It seems with changing times, this trend has reversed.

Nowadays, Domestic Institutional Investors (DIIs) have been countering FIIs. Earlier, they hoped FIIs stayed put, but now the general expectation is for FIIs to pare their ownership in some bluechip companies. Many fund managers openly talk about this. They believe if FIIs sell, valuations may become a bit cheaper, allowing them to accumulate stocks.

So, what has changed so dramatically?

The answer is, Indian retail investors seem to have realised the power of equity as an asset class. A majority of them are bullish on the prospects of the Indian economy, so they are flocking to the Indian markets through mutual fund schemes.

In July 2017, equity mutual fund schemes received net inflows of Rs 12,037 crore. While the combined inflows of balanced funds, Equity Linked Savings Schemes (ELSS) and other equity funds stood at Rs 20,591 crore as on July.
 

Retail investors betting big on mutual funds
Data as on July 31, 2017
(Source: AMFI, PersonalFN Research)   Sustained rally
Data as on August 08, 2017
(Source: NSE, PersonalFN Research)

1. Indian markets are reaching new highs
   
   Recently, some of the bellwether frontline indices such as S&P BSE Sensex and Nifty 50 touched all-time highs.
    


2. Nifty 50 is 14.5% up Year-on-Year (Y-o-Y) and a whopping 26.2% from the lows made during demonetisation. The sustained rally has boosted investors’ confidence. A number of mutual fund schemes have outperformed their benchmark. As a result, retail investors have been giving them the thumbs up.
    
3. Recovery hopes
   
   Several negatives that were expected on the economic front due to demonetisation have proven to be momentary. Despite the tremendous pressure of a slowdown, the Indian economy grew by 7.1% in the Financial Year (FY) 2016-17.
   
   Going forward, businesses are expected to post good financial results and report growth in business volumes. Besides, higher political stability and anticipation of 7.2% growth in FY 2017-18 has been keeping investors optimistic about equity markets.
    
4. GST impact
   
   After clearing innumerous hurdles, Goods and Services Tax (GST) is finally a reality. This revolutionary indirect tax system is expected to improve tax compliance and revenue collections. Post implementation, businesses in the organised sectors are expected to benefit immensely. Hence, it has created a conducive environment for investors.
    
5. Positive impact of investor education programmes
   
   Earlier this year, the Association of Mutual Funds in India (AMFI) launched an investor awareness campaign—“Sahi Hai”, with the objective to help the mutual fund industry gain a larger share of the household savings pie. Generous ad budgets and prime time broadcasts seem to have made an impact.
    
6. Lacklustre performance of other asset classes
   
   The other major asset classes——real estate, gold, and fixed income——have generated mediocre returns over the past one year. The outlook continues to appear bleak. With Federal Reserve (Fed) raising interest rates in the U.S., investors are raising (concerned) questions about the prospects for gold.
   
   A slew of reforms introduced in the domestic real estate sector is likely to bring the property prices down. Moreover, the ban on high-value cash transactions could destabilize the property market.

But, this can be the party spoiler…

Contrary to expectations, if Indian economy grows at a moderate pace and corporates fail to report healthy growth in revenues and profits, Indian equity markets could possibly fall. Thus, the right choice of mutual fund schemes matters.

What should investors do?

✔ Only invest in mutual fund schemes with a risk profile that is congruent with yours.
✔ Invest in mutual fund schemes that have a proven performance track record across market phases and time frames.
✔ Opt for Systematic Investment Plans (SIPs) offered by mutual fund houses, as they provide the benefit of rupee-cost averaging and aid you compound wealth.

If you don’t have time to shortlist right mutual fund schemes for your portfolio, just rely on the unbiased mutual fund research services offered by PersonalFN. Currently, PersonalFN is offering a massive 75% discount on the annual subscription of Fund Select Plus. You could also subscribe to the Strategic Portfolio For 2025, if you are keen to exploit opportunities that will handsomely reward you over the next 5-7 years.
 

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