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An analysis of inflows into equity MFs during the previous property upcycle of FY04-14 shows that even as investor appetite for property purchase increased substantially during FY04-08, equity market investments stayed high, foreign brokerage Jefferies said in a report.

Housing + equity investments as a percentage of household savings is 50-60 per cent and hence one rising doesn't mean the other falls. Share of gold has been trending down recently and can decline further, the report said.

The post-Covid surge in direct retail activity has normalised as evident in the non-institutional share of market volumes which is off 12 ppt from peak. Data on 'active' accounts from NSE shows a 22 per cent decline in these accounts by May 2023 from the mid 2022 peak. Also, while the past few weeks has seen mid-cap stock volumes rise, they are still to reach levels associated with mid-cap index peaks.

The net inflows into domestic MFs have averaged $0.5 billion during April-May 2023, down 80 per cent YoY. The lump-sum (non-SIP) component of flows has seen net outflows for seven of the last 12 months.

The report said that this period of weak lump-sum flows has broadly coincided with weak returns on Tr-12-month basis. The outflows though have not been large, and with the midcap indices making a new high recently, discretionary domestic flows could return soon.

The report said that the structural flows from retail to the equity markets is at $30-35 billion/annum.

The participation of retail via MFs has seen the monthly investing (SIP) accounts rise 19 per cent YoY to 65 million and monthly flows at $1.8 billion, +20 per cent YoY. The SIP flows account for 60 per cent of the structural domestic equity flows. Insurance, and pension fund (EPFO + NPS) inflows are also large ($10 billion+/annum) and rising.

The government mandates that 15 per cent of the annual gross inflows in the pension scheme (EPFO) must invest in equity markets, drawing net inflows of ~$5 billion/annum. The equity allocation by insurance companies adds another $5 billion.

The brokerage’s analysis of India's household savings data shows that equity holdings and flows as a percentage of household assets and annual savings is less than 5 per cent.

Indeed, just realloction within the savings pie is enough to sustain retail flows in the market, for e.g., SIPs are just 10 per cent of annual incremental bank deposits; and given the longer-term benefits of the former, can gain further share, the report said.