Amid FII selling, retail investors again prop up Indian market

Retail and high net-worth individual (HNIs) investors have become a key bulwark for the Indian stock market in recent years. Latest data underscores their growing significance as a counterbalance to selling pressure from foreign institutional investors (FIIs) and “other” investor categories.

This domestic buying spree has helped the Nifty outperform its Asian peers, such as Nikkei 225, South Korea's Kospi and Singapore's Straits Times Index, amid global market jitters.

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In the month through 9 August, as FIIs offloaded shares worth ₹13,431.48 crore, domestic mutual funds stepped in, purchasing ₹13,855.18 crore, according to data from the National Stock Exchange (NSE). The “other” category, comprising companies, trusts, and financial institutions, sold off ₹4,827 crore.

Yet, it was the retail and HNI investors who made the most decisive moves, net purchasing ₹10,599 crore. Combined with mutual fund activity, domestic investors collectively poured ₹24,030 crore into the market, as per exchange data, effectively neutralizing the selling pressure from FIIs and others.

These domestic inflows largely offset the selling by FIIs and the "others" category in both the cash and derivatives segments. FIIs and "others" together sold ₹18,258 crore in the cash segment, while FIIs alone sold index futures worth ₹11,102.41 crore from 1 to 9 August, according to NSDL data.

The net impact of call option selling or put option buying in derivatives could not be determined, as NSDL provides only the aggregate value of option transactions without breaking down net call or put buying figures.

This surge in domestic buying limited the Nifty’s decline to just 2.57% from its record closing high of 25,010.9 on 1 August, ending at 24,367.5 on 9 August.

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In stark contrast, Asian indices like Japan’s Nikkei 225, South Korea’s Kospi, and Singapore’s Straits Times Index suffered declines of 10.4%, 6.81%, and 4.62%, respectively, amid fears of a recession in the US and unwinding of the yen carry trade following the Bank of Japan’s rate hike.

The rise of savvy retail investors

"As opposed to blind buying and selling in the past , retail/HNI category has become savvier since the pandemic, coinciding with the market rally from 7,511 (as of) end FY20 to present 24,000-plus level ," said R Venkataraman, co-founder , IIFL group , and chairman of IIFL Securities. "This category has access to a plethora of information and is thus taking more informed decisions than in the past when they traded blind, akin to gambling rather than investing on fundamentals and for the long term."

The impact of these savvy investors is evident in their record-breaking activity this fiscal year. From 1 April to 9 August, direct retail net buying on the NSE totalled ₹50,566.02 crore, surpassing the ₹47,180 crore net purchases in FY24 and ₹49,184 crore in FY23. The all-time high remains ₹1.65 trillion in FY22.

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“The last three years especially have seen a spurt of retail HNI activity,” said Uttam Bagri, managing director, BCB Brokerage. “I’d say they’ve become smarter than in the past, as they have tended to invest at dips and sell at tops, thanks to being better informed. This has been seen in the recent pullback this month."