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How Domestic Investors' Inflows Protect Markets from Severe Downturns: Jefferies India's Insight

By GeoSquare News Desk · Published 2024-10-18

Mahesh Nandurkar, the Head of Research and Managing Director at Jefferies India, provides insights into the stabilizing role of domestic investor inflows in the Indian markets. Over the past 12 to 18 months, these strong inflows have acted as a protective shield against significant market corrections, ensuring that the market does not fall by more than 5% at any given time. The inflows come from various sources, including mutual funds, single-stock purchases, insurance companies, and pension funds.

In 2024, domestic inflows have been particularly robust, averaging around $8 billion per month. This translates to over $90 billion annually, a significant figure that represents more than 25% of household financial savings in India. Nandurkar emphasizes that while these inflows are expected to continue supporting the market, their sustainability at such high levels is a cause for concern.

According to Nandurkar, a more realistic long-term figure for domestic inflows might be around $4 to $5 billion per month. This adjustment is based on the current economic conditions and the potential for market dynamics to shift.

The robust demand for equity has also led to a sharp increase in supply, with numerous Initial Public Offerings (IPOs), Qualified Institutional Placements (QIPs), and block deals entering the market. Despite this increased supply, current domestic inflows have managed to absorb it effectively. However, Nandurkar warns that if this high supply continues, it could cap near-term market returns, potentially leading to a decline in domestic inflows.

He advises investors to exercise caution over the next 3 to 6 months, as market dynamics could change dramatically due to these factors. Nandurkar's insights highlight the delicate balance between supply, demand, and investor sentiment in the Indian market, emphasizing the need for strategic and informed decision-making.