On the day BSE Sensex crossed 59,000 mark for the first time ever and managed to close at 59,141 level with a gain of 417 points, RBI released its monthly bulletin for September 2021. While the latter is a regular feature, the commentary on stock markets should come as an assurance for the domestic investors.
The Reserve Bank of India in its monthly bulletin of September 2021 mentions that this time, the exuberance is a domestic investor story.
It says, ‘typically, such rallies are driven by foreign portfolio investors (FPIs) and they are buying hand over fist, as discussed subsequently, but this time, the exuberance is a domestic investor story. Equity mutual funds attracted net inflows for the sixth consecutive month in August. The number of systematic investment plan (SIPs) accounts registered in August alone was the highest-ever. The phenomenon of the retail investor is also evident from the ballooning of the number of Demat accounts’.
Many investors have been quite and apprehensive about the continuing bull run. Markets saw buying even when the country was hit by the deadly 2nd wave of coronavirus pandemic. The concerns are quite valid as after hitting multi-year lows in March 2020, the benchmark indices have largely moved northwards without really bothering much about the fundamentals of the economy. Since then there hasn’t been a significant correction making many investors nervous about the ongoing party on Dalal Street.
In the chapter titled ‘State of the Economy’ the RBI acknowledges that valuations are stretched but supported by expectations of strong earnings growth.
‘A record 29 companies filed draft prospectuses for public listings, riding on the rally in equity markets. This was the highest tally in a single month in the past 17 years. At least 25 more companies are expected to come out with initial public offerings (IPOs) in the remaining months of the year, and the fact that most companies that listed in 2020 and 2021 are trading above their offer prices is fuelling the IPO rush’ mentions RBI in the bulletin.
On Foreign Portfolio Investment RBI says from net sellers in the market in the previous month, FPIs turned net buyers in August in both equity and debt markets. As a result, total FPI inflows crossed an intra-year peak in 2021-22 so far. India has become the third-largest recipient of portfolio equity flows, after China and Brazil, in the calendar year 2021. FPI interest in the debt segment has gained traction in recent months in response to rising yield differentials and strengthening macro-fundamentals.
