Market Paradox: Inflows Halt Fall, IPOs Cap Rise

India's economic momentum remains robust, with growth potentially exceeding 6-7% driven by rising incomes and strong domestic market flows. A significant increase in blue-collar wages is boosting purchasing power, a key indicator of future consumption. The number of demat accounts has dramatically expanded from 3 crore pre-COVID to 20 crore currently, indicating a significant shift in retail participation. However, a large portion of these new investors entered the market after experiencing sharp rebounds in small and mid-cap stocks, potentially leading them to wrongly extrapolate these high returns.

Large-cap stocks are anticipated to outperform their smaller counterparts, partly because the primary source of new stock supply is currently concentrated in non-Nifty companies. While sectors like banking, insurance, pharmaceuticals, autos, and software are favored, caution is advised for consumer staples, utilities, and oil and gas sectors. The market's current state is described as a paradox: substantial domestic inflows are preventing significant downturns, while a continuous stream of initial public offerings is limiting upward mobility.

Past market cycles suggest that sustained zero or negative three-year returns could moderate retail inflows. Despite this, regulators and mutual funds have made strides in investor education regarding long-term equity investing. Domestic flows, amounting to approximately ₹5 lakh crore annually, now dominate the market, diminishing the impact of foreign selling and shaping current market conditions.