Retail investors in driver's seat while flows by FIIs take a back seat: UBS

With retail investors now in the driver’s seat, flows from foreign investor, considered to be the movers and shakers of equity markets, have taken a backseat over the past couple of years says a report of the foreign brokerage firm UBS.

The report is said to be based on a survey done in November 2020 that was focused on urban consumers with an average income of Rs 95,000 per month.

“Overall, when we combine household equity savings through mutual funds and direct share purchase, we see that households are a material force to be reckoned with: overall 25 per cent higher than foreign portfolio investment (FPI) net inflows over the last two years,” wrote Sunil Tirumalai, executive director and India Strategist at UBS.

The main reason of the increased retail participation in equities has been the lockdown triggered by Covid-19 that saw investors channelising their savings to capital markets in search of better returns on their investments and the need to increase their disposable income.

The share of client participation in capital markets at the NSE for individuals rose to 46 per cent in fiscal 2020-21 (FY21) on YTD basis as compared to 39 per cent in FY20, UBS said.

The overall rise in the financial wealth of Indian households in 9M-CY20 stood at Rs 22 trillion ($300 billion) up 9 per cent compared to the five-year trend, according to UBS.

While UBS suggests it is impossible to say with a high level of confidence what actions or lack it taken by the households led to this $200 billion in extra savings, a report by State Bank of India's economic wing (SBI Ecowrap) suggests that spending habits of consumers significantly changed during the pandemic within essential / non-discretionary and non-essential /discretionary items.

"The share of discretionary spends that had reached as much as 35 per cent of total cards spending in February crashed to 15 per cent in April. Since April, the share of discretionary spends has, however, fluctuated wildly between 15 per cent and 35 per cent indicating consumers are still uncertain when to splurge on items of discretionary consumption as uncertainty has prevailed in the minds of consumers with different phases of economy opening," observed Dr. Soumya Kanti Ghosh, group chief economic adviser at State Bank of India in a report.

However, the share of savings that flowed into market-linked instruments at 5 per cent during this period was far less than flows into currency (17 per cent), insurance, pension and provident fund (31 per cent), UBS’ findings show.