Why Indian Market Will Not Correct Much In Near Future

Unless the existing goe-political tension across world, especially between US and North Korea, turns into a war, I don't see a reason for Indian equity market to correct heavily in coming days. Any correction to 9100 or even 9500 is a good buying opportunity for retailers with long term investment horizon. Supercyle in Domestic liquidity is the main and perhaps the only reason why there is less chance for market correction, even though the marco-economic picture of India is not looking good for the next 2 quarters at least from now. Let us see how money fill be pumped by DII's to support the market.

Employees’ Provident Fund

Employees’ Provident Fund or EPF for the entire organised sector of India which is controlled by the Employees Provident Fund Organisation (EPFO) of the government. Employees Provident Fund Organisation has a corpus of close to Rs 10 lakh crore, recently decided to invest Rs 22,500 crore in exchange traded funds in 2017-18 following approval from its central board of trustees to increase the equity investment from 10 per cent to 15 per cent. I believe this percentage will also be revisited by the Government in coming years which could increase the equity investment percentage to 20-25.

National Pension Scheme

National Pension Scheme (NPS) is managed by India’s pension regulator, the Pension Fund Regulatory and Development Authority (PFRDA). The corpus managed by National Pension Scheme is around Rs 200,000 crore. Recently they have written to government requesting approval to invest 50 per cent of the funds contributed by government employees under NPS which amounts to nearly Rs 86,000 crore. This signals a major shift considering that only 15 per cent of such funds are now routed to the stock markets.

As of now the money invested by NPS to Indian market is nearly Rs 29,000 crore. If Government approves for 50% investment, another Rs 59,000 crore money will flow to Indian stock market. I am not expecting a step by step increase in the investment percentage in the next 2 to 3 years, meaning every year another Rs 15,000 crore will flow to BSE and NSE.

“We are planning to increase equity share. We have put up a proposal to the government to increase it to 50 per cent. In the case of government servants, the equity investment is limited to 15 per cent whereas in the case of non-government employees it can go up to as high as 50 per cent. It should be uniform for all. We have said government servants should be given the same choice. If that happens, it will be a big change. Government money still accounts for 87 per cent of the total funds. That could make a lot of difference. In the long-term, it has shown that equity is the better investment in terms of returns”~ Hemant Contractor, PFRDA chairman

NPS Is Growing: Data shows that NPS penetration is growing every year. Last year the growth in number of subscribers in the government sector is around 11-12 per cent and total subscriber grew by around 27 per cent. Investments also grew by around 47 per cent last year.

Mutual Funds Are Growing

In the report titled ‘India’s Digital Leap — the Multi-trillion Dollar Opportunity’, Morgan Stanley Research expects the assets under management of mutual funds to register a compounded annual growth of 22 per cent to $1.9 trillion (about ₹125 lakh crore) from $273 billion over the next 10 years. According to Morgan Stanley, this growth will be largely backed by the government’s push on digitisation boosting the economy and earnings of individuals.

“We estimate digitisation to provide 50-75 basis point boost to GDP with India becoming a $6-trillion economy and achieving upper-middle income status by FY27. We expect India’s real and nominal GDP to record compounded annual growth of 7.1 per cent and 11.2 per cent (10.2 per cent in dollar terms) over the decade,” ~Ridham Desai, Equity Strategist, Morgan Stanley Research