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Local funds turn net sellers after 17 months; FIIs are big buyers

Local funds turn net sellers after 17 months; FIIs are big buyers
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First Published: Thu, Apr 30 2009. 10 37 PM IST

Updated: Thu, Apr 30 2009. 10 37 PM IST
Mumbai: Domestic institutional investors (DIIs) such as mutual funds and insurers turned net sellers of Indian stocks for the first time in 17 months in April as they booked profits, taking advantage of the 17.46% rise in equities this month, the best monthly performance in at least a decade.
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According to Bombay Stock Exchange (BSE) data, DIIs closed April with net stock sales of Rs782.33 crore. The last time this class of investors turned net sellers was in October 2007, when they sold Rs1,352 crore.
Indeed, local financial institutions kept on buying stocks right through the stock market meltdown last year which saw the Sensex, BSE’s benchmark index, tumble 52% through the year, after touching its lifetime high of 21,206.77 points in mid-January.
During the year, which saw the collapse of US investment bank Lehman Brothers Holdings Inc., the sale of Merrill Lynch and Co. Inc. to Bank of America Corp., and the US government’s takeover of insurer American International Group Inc., foreign institutional investors, or FIIs, the main driver of Indian stocks, pulled out money in a flight to safety, hammering local stock prices.
Local institutions bought at lower levels of the market, said Satish Ramanathan, head of equities at Sundaram BNP Paribas Asset Management Co. Ltd, which has Rs9,267 crore assets under management. “Its natural that they book profits.”
Since 9 March, India’s equity markets have bounced back, tracking the rally in global equity markets, pinning hopes on a trickle of positive news such as improved car, steel and cement sales, a $1 trillion (Rs50.2 trillion) stimulus package released by the US government and so on. International investment gurus such as Mark Mobius of Templeton Asset Management Ltd have called it a new bull rally as the Sensex gained 39.74% from that day.
Still, there are others, such as HDFC Asset Management Co. Ltd’s chief executive Milind Barve, who believe that it’s too early to say whether this trend will continue.
According to him, the Rs782.33 crore net sales “is a marginal figure” given the huge volume of trading that takes place. In April alone, local fund houses and insurers sold Rs18,653.97 crore worth of stocks and bought Rs17,871 crore in 17 trading days.
India has 38 mutual funds that collectively managed some Rs4.93 trillion worth of assets at the end of March. Of these, Rs95,000 crore are assets in equity schemes.
The insurance industry is much larger, with Rs8.56 trillion worth of assets at the end of March 2008, according to data provided by the Life Insurance Council, an industry group. This consists of assets under both the so-called unit-linked plans and endowment plans. While under the former most assets are invested in equities in accordance with investor appetite, insurance regulator’s norms allow only about 20% of assets under other plans to be invested in stocks. Life Insurance Corp. of India, invests the most in equities and accounts for more than three-quarters of total assets under management by insurance firms.
Another significant trend is the return of foreign money into Indian stocks in volumes not seen since the peak of the bull run in December 2006. FIIs bought Rs7,039 crore of Indian stocks in April, the highest in 17 months, as risk appetite returned for investors. The last time they bought so much stock was Rs17,325 core in October 2007.
However, that amount included FII buying in primary markets too. Eight firms offered shares to the public in October 2007 and among them Power Grid Corp. of India Ltd floated the largest public issue, raising Rs2,984.45 crore.
To be sure, India is not the only country which is seeing a lot of foreign money coming in. According to fund tracker EPFR Global, emerging market equity funds saw inflows for seven straight weeks till the end of the week ended 22 April.
Overall, FIIs have bought $60.1 million worth of Indian stocks thus far in 2009. They had sold some $12.18 billion worth of local equities in 2008. There are at least 1,150 overseas financial institutions registered as FIIs with market regulator Securities and Exchange Board of India, or Sebi. India opened doors for FIIs in 1993 and since then this class of investors bought local stocks worth $49.33 billion net of selling, according to Sebi data.
“FIIs think differently,” said Aneesh Srivastava, chief investment officer of IDBI Fortis Life Insurance Co Ltd. “They have a top-down perspective. And nowhere else would they find 5% GDP (gross domestic product) growth apart from China and India.”
Indeed, now institutions such as Swiss bank UBS AG, Barclays Capital and Macquarie Bank Ltd are predicting that the local economy can only get better from now, and that they are looking at a mid-year recovery. Many of them have upgraded India’s GDP growth forecasts in the past two weeks.
However, no one is willing to say whether this trend is likely to continue, saying it is too early.
“The view (on Indian stocks) has not changed,” said Sandesh Kirkire, CEO of Kotak Mahindra Asset Management Co. Ltd. “Some degree of profit booking has happened because of the sharp uptick. I can’t see anything more than that.”
Graphics by Ahmed Raza Khan / Mint
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First Published: Thu, Apr 30 2009. 10 37 PM IST