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New Delhi: <keyword id="19900795" type="General" weightage="20" keywordseo="foreign-investors" source="keywords">Foreign investors</keyword> pulled out a massive Rs 94,000 crore (around USD 11.2 billion) from the Indian <keyword id="19925636" type="General" weightage="20" keywordseo="stock-market" source="keywords">stock market</keyword> in October, making it the worst-ever month in terms of outflows, triggered by the elevated valuation of domestic equities and attractive valuations of <keyword id="20295104" type="General" weightage="20" keywordseo="Chinese-stocks" source="keywords">Chinese stocks</keyword>. Before this, foreign portfolio investors (FPIs) withdrew Rs 61,973 crore from equities in March 2020. The latest outflow came after a nine-month high investment of Rs 57,724 crore in September 2024. Since June, FPIs have consistently bought equities after withdrawing Rs 34,252 crore in April-May. Overall, FPIs have been net buyers in 2024, except for January, April and May, data with the depositories showed. Looking ahead, the trajectory of global events like geopolitical developments, interest rate movements, progress in the Chinese economy and the outcome of the US Presidential election will play a crucial role in shaping future foreign investment in <keyword id="20014814" type="General" weightage="20" keywordseo="Indian-equities" source="keywords">Indian equities</keyword>, Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India, said. On the domestic front, key indicators like inflation trajectory, corporate earnings, and the impact of festive season demand will also be closely watched by FPIs as they assess opportunities in the Indian market, he added. According to the data, FPIs recorded a net outflow of Rs 94,017 crore in October. The intensity of net outflows could be gauged from the fact that except for one day, FPIs were net sellers throughout the month, bringing their total investment for 2024 down to Rs 6,593 crore. This relentless selling resulted in about an 8 per cent decline in benchmark indices from their peaks. Several factors contributed towards this massive withdrawal of foreign capital from the Indian equity markets in October. The major among them is the elevated valuations of Indian equities. This has triggered a shift in investments towards China, where valuations are currently more attractive. Additionally, a series of stimulus measures, aimed at bolstering Chinese economic growth has made Chinese equities increasingly appealing to global investors, Srivastava said. Despite the massive FPI selling in financials, this sector is resilient since the valuations are fair and every selling is being absorbed by DIIs and individual investors, particularly HNIs, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said. In addition, FPIs pulled out Rs 4,406 crore from the debt general limit and invested Rs 100 crore from the debt Voluntary Retention Route (VRR) during the period under review. So far this year, FPIs invested Rs 1.06 lakh crore in the debt market.

FPIs withdraw record Rs 94,000 cr from Indian equities in Oct on attractive Chinese valuations

<keyword id="19900795" type="General" weightage="20" keywordseo="foreign-investors" source="keywords">Foreign investors</keyword> made a notable return to the <keyword id="19932512" type="General" weightage="100" keywordseo="Indian-stock-market" source="keywords">Indian stock market</keyword> this week (August 19-23). The <keyword id="19900795" type="General" weightage="20" keywordseo="foreign-investors" source="keywords">foreign investors</keyword> made a net purchase of <keyword id="19925781" type="General" weightage="20" keywordseo="equities" source="keywords">equities</keyword> amounting to Rs 4,897.16 crore, according to data from the <keyword id="20070086" type="General" weightage="20" keywordseo="National-Securities-Depository-Limited" source="keywords" meta.keywordsubtype="org" meta.entityname="National Securities Depository Limited" meta.hostid="83" meta.entityid="National Securities Depository Limited">National Securities Depository Limited</keyword> (<keyword id="20519694" type="General" weightage="20" keywordseo="NSDL" source="keywords">NSDL</keyword>). This marks a significant shift from the previous week (August 12-17), when <keyword id="20015748" type="General" weightage="20" keywordseo="foreign-portfolio-investors" source="keywords">foreign portfolio investors</keyword> were net sellers, offloading <keyword id="19925781" type="General" weightage="20" keywordseo="equities" source="keywords">equities</keyword> worth Rs 7,769.73 crore. Despite this week's positive inflow, the overall net investment by foreign investors in August remains negative. So far this month, foreign investors have sold equities worth Rs 16,305 crore in the Indian market. This trend highlights the volatility in foreign investment patterns during the month. Interestingly, while foreign investors were net sellers in August, <keyword id="20148367" type="General" weightage="20" keywordseo="domestic-investors" source="keywords">domestic investors</keyword> played a crucial role in supporting the <keyword id="19932512" type="General" weightage="100" keywordseo="Indian-stock-market" source="keywords">Indian stock market</keyword>. According to official data from the National Stock Exchange (<keyword id="20004725" type="General" weightage="20" keywordseo="NSE" source="keywords">NSE</keyword>), <keyword id="20148367" type="General" weightage="20" keywordseo="domestic-investors" source="keywords">domestic investors</keyword> have consistently bought into Indian stocks, purchasing equities worth Rs 47,080.38 crore in August. This strong domestic participation has provided stability to the market amid the fluctuating foreign investment trends. "It is essential for policymakers to continue fostering an environment that encourages domestic investment while ensuring that foreign investors remain an integral part of the market. Balancing the interests of both domestic and foreign investors will be key to sustaining growth and stability in the Indian stock market. From 6.6 % in December 2012, India's share in the MSCI EM Index has gone up to 20 % plus in August 2024" said Ajay Bagga, Banking and Market Expert. Earlier in July, net foreign investments in the Indian stock market reached Rs 32,365 crore as the foreign investors were net buyers, as per data from the <keyword id="20070086" type="General" weightage="20" keywordseo="National-Securities-Depository-Limited" source="keywords" meta.keywordsubtype="org" meta.entityname="National Securities Depository Limited" meta.hostid="83" meta.entityid="National Securities Depository Limited">National Securities Depository Limited</keyword> (<keyword id="20519694" type="General" weightage="20" keywordseo="NSDL" source="keywords">NSDL</keyword>). This marked a continuation of strong foreign interest following June, when <keyword id="20015748" type="General" weightage="20" keywordseo="foreign-portfolio-investors" source="keywords">Foreign Portfolio Investors</keyword> (<keyword id="19930635" type="General" weightage="20" keywordseo="FPIs" source="keywords">FPIs</keyword>) purchased Indian stocks worth Rs 26,565 crore on a cumulative basis. <keyword id="19930635" type="General" weightage="20" keywordseo="FPIs" source="keywords">FPIs</keyword>, which involve investors acquiring foreign financial assets, play a significant role in influencing market dynamics by channeling substantial funds into the Indian equity market.

Foreign investors return to Indian stocks with net investment of Rs 4,897 crore this week

<div type="image" title="Are Indians depositing less money in banks, or more in mutual funds? Turns out, it&amp;#39;s neither of those." msid="113663806" hostid="261" sizebytes="1121785"></div> Over the past few months, there’s been a lot of brouhaha about the lagging pace of <keyword id="20202062" type="General" weightage="20" keywordseo="bank-deposits" source="keywords">bank deposits</keyword> in India. Simply put, the rate at which Indians are depositing their hard-earned money in banks has been falling constantly, and some blame the increasing financialisation of <keyword id="20751315" type="General" weightage="20" keywordseo="household-savings" source="keywords">household savings</keyword> in the country or the rising preference of Indians towards <keyword id="19929240" type="General" weightage="20" keywordseo="mutual-funds" source="keywords">mutual funds</keyword> and shares. So, the hypothesis is that people are choosing to invest more in mutual funds and the Indian <keyword id="19949641" type="General" weightage="20" keywordseo="equity-markets" source="keywords">equity markets</keyword> through direct investments, IPOs, or NFOs, the money flowing into Indian banks in the form of deposits is slowing down. But is that really the case? <h2>A crisis or a phase?</h2><keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords" meta.keywordsubtype="org" meta.entityname="RBI" meta.hostid="261" meta.entityid="RBI">RBI</keyword> data suggested that for the quarter ended June 2024, bank deposits grew at 11.7%. On the other hand, credit growth has outpaced this at 15%. This means that the outflow from banks as loans is far greater than the inflow into them in the form of deposits in Q1 of FY 2024-25. The situation largely saw cut-copy-paste in the first week of September as well, with loans registering a 13.3% YoY growth during the period, while deposits rose only 11.1%. This gap has only been widening for the last 3 years. Since deposits are how banks gather assets to further lend and earn interest income as a consequence, even a slight dip could set the alarm bells ringing for banks, and rightfully so. And truth be told, mutual funds are indeed taking on bank deposits in a big way. Per a report by Franklin Templeton, in August 2024, the AUM (assets under management) of Indian mutual funds, or the total funds managed by them, stood at 31.3% of total bank deposits in the country, up from 24.20% during the year-ago period. As of August 2024, the AUM of mutual funds stood at Rs 66.17 lakh crore, an all-time high. But all said and done, is this really the reason why the rate of bank deposits is falling behind? SBI has dismissed this to be a “statistical myth”, and experts point out that since equity and fund houses also keep the cash in their respective bank accounts, there’s no cause for concern. So, is financialization really to be blamed for the trailing tempo of deposits? Or is something else happening behind the scenes? We take a closer look: <h2>First, are household deposits really slowing down? And is that a cause of concern?</h2>Data from Motilal Oswal suggests the contrary. Deposits grew by around 10.4% between March 2020 and August 2024. Data from RBI also highlights that as of August 9, 2024, bank deposits witnessed a YoY growth of 10.8%. The loan-to-deposit ratio for the retail segment, which indicates what percentage of its total deposits the banks lend out as loans, has stayed at 77.5%, above the 77% mark for the tenth straight month. <div type="image" title="Yes, household deposits (as % of total deposits) have dipped, but the drop is far from significant" msid="113663882" hostid="261" sizebytes="306706"></div> Also, we can’t forego the fact that the share of Indian households in bank deposits has indeed slowed down. However, data from Axis AMC shows that the dip is marginal—from 63% in 2022 to 62% in 2023 and 61% in 2024. What has slowed down even more considerably is the share of government deposits in the aggregate bank deposits, which has dipped from 14% in 2018 to 9% in 2024. So, it's not just household deposits, you see. Moreover, as of March 2024, the collective CASA ratio (current and <keyword id="114757" type="General" weightage="20" keywordseo="savings-account" source="Orion">savings account</keyword> deposits) of all commercial banks in India stood at 41.00%, down from 43.1% in March 2023 and 45.2% in March 2022, marking a nearly 5% point decline over the past year, while still staying over the 10-year average of 39.2%. This implies that Indian banks are relying more on higher-cost funds (savings accounts), which can limit their profitability. <h2>What is this financialisation of savings we are talking about?</h2>Then again, there is no doubt about the growing affinity of Indians towards mutual funds and stock markets. Recent data from CBDT (Central Board of Direct Taxes) highlights that India’s net direct tax collection surged by around 22%, driven exclusively by the significant uptick in the collection of Securities Transaction Tax (STT), which doubled to Rs 26,154 crore, from Rs 13,352 crore in the year-ago period. Why does this matter? STT is levied when you buy or sell equity shares on stock exchanges, sell <keyword id="6361918" type="General" weightage="20" keywordseo="equity-mutual-funds" source="Orion">equity mutual funds</keyword>, and trade in futures and options in the equity segment. Such taxes, including the multiple other taxes in equity market investments, are considered as leakages as the money moves out of the economy into government coffers. Data from a ValueQuest report explains that over the last 20 years, the markets have handsomely rewarded the investors, generating over $900 billion in incremental value for them. This is the major driver behind the dramatic rise in investment flowing towards the equity markets. There’s further proof of this budding romance, if you check the demat pudding. The number of demat accounts, which are a primary requisite for participating in the stock markets, also burgeoned by 42.3 lakh in August 2024, taking India’s total tally of demat accounts beyond 17 crore. To put this in perspective, this is almost equivalent to the population of just 8 nations in the world, including China, the US, Brazil and more. Vivek Iyer, Partner, Grant Thornton Bharat thinks it's rather important, as well. “Financialisation of household savings in India is an indication of deepening capital markets in the market, especially from a retail investor standpoint. Bank deposits with a modest rate of return are no longer the only option for savings for investors. Investors today have more avenues for wealth creation in the form of public capital markets, which have democratized wealth creation and provided equality of opportunity to retail investors”, he says. Yes, Indians are investing more and more in the markets, and in mutual funds. But is it a sin to look out for inflation-beating returns, which the stock markets offer, and vanilla bank deposits don't? After all, the allure of 12-13% annual returns offered by <keyword id="45369" type="General" weightage="20" keywordseo="equities" source="Orion">equities</keyword> can certainly pale the stability offered by good old deposits, which generally do not go beyond 9% when it comes to annual returns. But all of this is not what is behind the slowdown. India is still a toddler in the school of savings financialization, with less than 10% of the population holding a demat account, and less than 5% of us saving in equities. That's a drop in the ocean of deposits, far inadequate to trigger a tsunami. <h2>Tell me why lagging deposits have nothing to do with Indians investing more in mutual funds!</h2>Says Shweta Rajani, Head - Mutual Funds, Anand Rathi Wealth Limited, “Households' equity holdings composition grew from 11.1% in FY 23 to 14.7% in FY 24. This trend reflects a growing awareness of investment options, empowering individuals to take control of their financial futures. Despite this transition towards equities, banks still hold a significant share of household financial savings—33.5% in FY24 compared to 34.9% in FY23”. Also, household savings and their subsequent financialization do not have much to do with deposit creation, which is entirely made by banks. What actually drives increased deposits is credit growth or increased lending. When interest rates are eased, people tend to borrow more and spend more, which circulates more money in the economy. For the past 4 years, RBI has been tightening the screws on interest rates, which raises the cost of borrowings, and makes it more expensive to take loans, putting a dampener on credit growth, but effectively curbing inflationary pressures. The last time RBI cut the repo rate by 40 basis points was back in May 2020, 4 years ago. The lag in <keyword id="19998084" type="General" weightage="100" keywordseo="deposit-growth" source="keywords">deposit growth</keyword> we’re witnessing is almost 3 years old. Coincidence much, or just good old economics at work? But with the Fed recently setting a rate cut precedent by slashing 50 bps off its interest rate, RBI is expected to follow suit in the next MPC (Monetary Policy Committee) meeting, scheduled for November 2024. A rate cut would ease the aforementioned high cost of borrowing, and increase loan-taking for corporates and institutional investors, thereby stoking consumption in the economy. And then, deposit creation in banks is likely to return to its former glory. If not, then that would be a curious case to unravel! But that worry is for another day. Do you have insights or personal experience to share on your personal finances or money? Contact us at <a target="_blank" class="c-link" href="mailto:businessinsider@timesinternet.in">businessinsider@timesinternet.in</a>.

Simply Put: A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

The State Bank of India (<keyword id="19898108" type="General" weightage="20" keywordseo="sbi" source="keywords">SBI</keyword>) in its latest report has asked for <keyword id="20213295" type="General" weightage="20" keywordseo="tax-reforms" source="keywords">tax reforms</keyword> after concerns were flagged over the recent decline in <keyword id="20202062" type="General" weightage="100" keywordseo="bank-deposits" source="keywords">bank deposits</keyword>. The report says tax Reforms for Deposits can accentuate the banking system's stability and resilience to the next level. SBI attributed the fall in deposits to the varied rates of return offered by different <keyword id="20139443" type="General" weightage="20" keywordseo="investment-options" source="keywords">investment options</keyword> for similar time frames and different tax rates on <keyword id="22837794" type="General" weightage="20" keywordseo="returns-on-deposits" source="keywords">returns on deposits</keyword>. The <keyword id="20352499" type="General" weightage="20" keywordseo="SBI-report" source="keywords">SBI report</keyword> said that "<keyword id="20658792" type="General" weightage="20" keywordseo="tax-treatment" source="keywords">Tax treatment</keyword> of bank and non-bank channels are non-uniform, even as bank deposits have a wider and denser pass-through effect across the populace sensitivity of Deposits on Tax is as much as 7 per cent" The report noted that a bank deposit of Rs 10 lac in a Savings Bank (SB) account at an investment return of 3 per cent would generate Rs 30,000 in returns and after accounting for taxes and exemptions, the <keyword id="22837795" type="General" weightage="20" keywordseo="net-return" source="keywords">net return</keyword> would be Rs 16,000. The report adds that the net returns vary significantly if deposits are made in different instruments like <keyword id="21041176" type="General" weightage="20" keywordseo="term-deposits" source="keywords">term deposits</keyword>, short and long-term investments in debt funds, liquid funds or bonds. The tax rates on these deposits also favour saving banks or term deposits. The report illustrates a term deposit of up to one year with the same principal amount of Rs 10 lac at a yield of 6.25 per cent would result in a net return of Rs 50,000 after taxes. But for term deposits exceeding one year the interest rate is higher and with an interest rate of 7.25 per cent, the gross return would be Rs 72,500. After taxes, the net return would be Rs 58,000. The data highlights that similar type of investments for the same period generates significantly different returns because of different tax treatment by the government. Similar variations are observed in other <keyword id="20105084" type="General" weightage="20" keywordseo="investment-plans" source="keywords">investment plans</keyword> as well. For instance, investments in equity and mutual funds with a 2 per cent dividend income of Rs 10,00,000 generate Rs 20,000, which after taxes the net return is Rs 16,000. However, Short-term investments of less than one year in equity and mutual funds, offering an 11 per cent return generate Rs 1,10,000, with a net return of Rs 88,000 after taxes. This investment if made in Long-term investments of more than one year the return increases to 15% on Rs 10,00,000 and generates Rs 1,50,000 annually. With a lower tax bracket of 12.5 per cent tax on long-term investments and applicable exemptions, the net return is Rs 1,43,750. These variations in returns across different deposits and investment options highlight the complexity and thus investors are choosing the higher return options over the bank deposits which in turn poses a threat to the deposit growth in the banking sector.

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FPIs withdraw record Rs 94,000 cr from Indian equities in Oct on attractive Chinese valuations

PTI

Foreign investors return to Indian stocks with net investment of Rs 4,897 crore this week

ANI

Simply Put: A Deposit Dilemma — What's the fuss about a crisis in Indian bank deposits? Are mutual fund investments to blame?

Ira Alok Puranik

Decline in bank deposits because of non-uniform tax treatment on various investment options: SBI report

ANI

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