BSE’s 30-share Sensex closed 0.7% higher from its previous close at 28,439.28 points on Monday, the highest close since 23 September.
Foreign institutional investors (FIIs) pumped a net of only $4.65 million or Rs28.12 crore YTD, while domestic institutional investors (DIIs), which largely consist of mutual funds and insurance companies, bought a net of Rs5,771.82 crore of equity shares so far this year.
“Mutual funds were buying in the market through November and December too, but FIIs were selling heavily. With FII selling pausing in January, the market rallied; the valuations had turned comfortable by mid-December," said Gopal Agarwal, chief investment officer of Mirae Asset Global Investments (India) Pvt. Ltd.
Mutual funds invested a net of Rs6,144.7 crore in equities so far in 2017, data from Securities and Exchange Board of India, or Sebi, showed. They have been net buyers of Indian shares on a monthly basis since August, and pumped in a net of record Rs13,610.4 crore in the asset class in November.
On the other hand, FIIs sold a net of a record Rs17,736.95 crore in November, and have been net sellers of Indian equities since October, mainly on the back of a stronger US dollar, and a sudden demonetisation move by the Indian government to tighten its noose on black money.
November was marked by a sudden demonetisation announcement by the Indian government to ban high-denomination currency, coupled with unexpected win by Donald Trump in the US Presidential elections.
“The FII as the key driver for the Indian market will gradually become yesterday’s story. I doubt that over the next two years FIIs will be a meaningful driver of the market," Saurabh Mukherjea, chief executive of Ambit Capital Pvt. Ltd, said in an interview on 1 February.
“Around 10 years ago, when we were a country with $500 per capita income, we were so poor that we could not possibly drive the stock market with our own money," said Mukherjea
“We simply didn’t have the risk capital sources to drive the stock market . So, in early stage of the development of our market, FII was the key driver of the market," he added
Mukherjea said in those times, FIIs taking a central place in Indian market made a lot of sense.
“As the economy is recovering to a $2.5 trillion one and as the attack in black money is relentless, logically what is happening is domestic savings are changing from physical to financial. Those domestic financial saving are driving the stock market," Mukherjea said.
Mutual funds’ assets under management (AUMs) rose 5.5% to a record high of Rs17.37 trillion at the end of January, backed by strong inflows in income schemes and exchange-traded funds (ETFs).
Inflows into equity funds were Rs4,800 crore in January, sharply down from Rs10,103 crore in December. A few fund managers, who did not wish to be named, said some investors were on the sidelines as they feared the Union budget would introduce long-term capital gains tax (LTCG) on sale of securities and units of mutual funds, which eventually was not announced. The industry’s equity AUMs also rose 5.75 % to a record high of nearly Rs5 trillion at the end of January.
“Mutual funds have seen continued inflows, led by SIPs (systematic investment plans) and ETF investment by EPFO (Employees’ Provident Fund Organization) ," said Harsha Upadhyaya, chief investment officer (CIO)-equity at Kotak Mahindra Asset Management Co. Ltd.
“Every month, the industry at large added 4 to 5 lakh new folios for SIPs. There are a total of around 1.2 crore folios in the industry," said Upadhyaya.