When it comes to the participants that can really move equity markets, regardless of country, that status is usually reserved for hedge funds, institutional investors and other professionals. Many often overlook the market-moving potential of retail investors. That shouldn’t be the case. It appears as though banks and money managers are aware of the potential potency of retail investors in India.
Those institutions are increasingly targeting potential investors in rural areas of the country and as those investors finally embrace stocks, the movement could be a catalyst for exchange traded funds such as the WisdomTree India Earnings Fund (EPI) and the WisdomTree India Hedged Equity Fund (INDH).
Rural Indians have preferred cash, gold, and real estate over equities historically. The move into the stock market comes as Indian stocks remain among the brightest spots in the emerging markets complex. Year-to-date, EPI is up 23.6%; the MSCI Emerging Markets Index, by contrast, is up 12.8%. Over the past three year, the WisdomTree ETF is up 45.2% while the MSCI gauge is off 5%.
Stocks Embraced in Rural India
Data indicate that some investors living far from India’s major cities are embracing their country’s high-flying equities.
“Outside the biggest cities, where the growth rate is even higher, much of this new wealth is pouring into mutual funds. People living beyond the 30 biggest metropolis areas hold some 12 trillion rupees ($143 billion) in mutual funds today, most of which invest in stocks, according to Association of Mutual Funds in India. That’s up more than 200% from five years ago,” according to Bloomberg.
Many investors in rural regions of India aren’t buying individual stocks. The rush to mutual funds is impactful. As market participants pour cash into those funds, managers need to buy more stocks. EPI allocates nearly 22% of its weight to financial services firms.
Even some bumpy election results haven’t prevented Indian retail investors from rushing into stocks. In fact, citizens of the country now own more equities than global investors for the first time since early this century.
“This year alone, local investors — including institutional and retail — have purchased a net $51 billion of shares, undeterred by the setback that Prime Minister Narendra Modi, the architect of the country’s economic revival, was dealt in June when his party lost its majority in parliament,” reported Bloomberg.
For more news, information, and analysis, visit the Modern Alpha Channel.
