A striking trend in the post pandemic period is the rise of interest in equity investing from retail investors. On October 25, the National stock exchange announced that the unique registered investors on the NSE crossed 50-million count. While the journey from 30 million registered investors to 40 million took about 15 months, the next 10 million investor registrations took less than seven months. The MF industry now has a total of nearly 112 million folios. The MF industry has added nearly 9 million folios in first 6 months of FY22. This is a significant acceleration compared to FY21 when the MF industry added over 8 million folios. The SIP AUM for Sept 2021 stands at Rs. 5,44,975.96 crore, nearly a third of total Retail AUM of Rs. 17.72 lakh crore. New SIPs registered during Sept 2021 at a record 2.7 million registrations, the highest ever. The monthly SIP value has now climbed above the Rs. 10,000 crore mark.

The efforts to grow the participation of individual investors in equities are now bearing fruit.  And the Mutual fund industry is at the vanguard of this shift of savings from real estate, gold and bank deposits to investment products. Relative to the size of opportunity however there is still much more distance to be covered. Product innovation, investor education and technology led onboarding of new investors hold the key  to continued growth.

Multiple indicators suggest that the economic growth is recovering quite swiftly from the second covid wave.  A process of transition and transformation is underway in the economy; this has resulted in a multi-speed economy. Not every segment is moving at the same pace.  Certain segments of the economy are seeing gains post a period of change, while others are experiencing setbacks and challenges.

The Reserve Bank of India has retained its growth forecast at 9.5% for FY22. The  rate of growth in the fourth quarter of FY22 is forecast to be in line with the pre-pandemic growth rates. There is no reason for policy settings to be in emergency mode with growth returning to trend and we should expect gradual normalization. Corporate profits have grown strongly over the comparable period of FY20  though GDP  is expected to recover to its FY20 level only by end FY22. The union government’s fiscal is also in its best health relative to the trend of previous years. In September end the central deficit  stood at 35% of the FY target as compared to the 10-year September end average of 74% of FY target. This gives the government the wherewithal to deal with the risks inherent in a multi-speed economy with finely targeted capital and revenue spending.

The buoyancy in the equity markets has led to elevated valuations and this could prove to be a drag on returns. In fixed income market the challenge is to deal with the gradual normalization of policy in the coming months. Rather than try to pick turning points we would recommend staying disciplined in term of asset allocation and systematic investing.  

May the festival of lights brighten your homes this Diwali.

Above commentary is published in UTI Fund Watch (monthly factsheet) in the section of Update from CIO’s Desk, click here to refer to the factsheet.