Local investors play as FIIs sell on credit pinch

Local investors play as FIIs sell on credit pinch

Mumbai: Local institutional investors have been far more savvy than foreign institutional investors (FIIs) during the uncertain times over the past two months.

After liquidity problems arose in late July, FIIs turned heavy sellers, led by hedge funds, who felt the pinch of the credit squeeze. Between 25 July and 18 September, they were net sellers worth Rs11,060 crore in the cash segments of the Bombay Stock Exchange (BSE) and the National Stock Exchange, data compiled by BSE reveals.

During the same period, domestic financial institutions including mutual funds, insurance companies and banks bought stocks worth Rs9,800 crore.

Assuming these investors were buying and selling units of the BSE 100 during the past two months (most institutional portfolios are concentrated in the stocks forming BSE 100), it turns out that FIIs have sold at an average index value of 7,355.

BSE 100 is currently at 8,425, which means FIIs have lost 15% on their trades posted since 25 July. The net amount lost during the period would be Rs1,610 crore ($400 million). Needless to say, these losses are notional, but they demonstrate the extent to which FIIs have been hit by selling low and buying high.

Domestic institutions, on the other hand, were buying when FII sales were driving stocks to low levels. Their purchases were made at an average index value of 7,451, giving them a gain of of about 13% on their net purchases worth Rs9,800 crore.

While foreign institutions were facing the heat of the liquidity crunch, their domestic counterparts were enjoying the luxury of higher-than-usual cash levels in their portfolios. As Sashi Krishnan, chief investment officer at Bajaj Allianz Life Insurance Co. Ltd points out, “When hedge funds were selling, we were getting good businesses at reasonable valuations. The purchases in July and August were not so much to act as a stabilizing factor, but more to benefit from good buying opportunities."

About half of the net investments made by domestic institutions were by mutual funds, data published by the Securities Exchange Board of India reveals.

During the period, they made purchases worth Rs4,800 crore. The rest mainly came from life insurance companies.

Life Insurance Corp. of India, which accounts for over 80% of the industry’s assets under management, disclosed recently that over 80% of its sales so far this fiscal were from sales of unit-linked insurance plans (ULIPs).

In the case of ICICI Prudential Life Insurance Co. Ltd, the largest private sector player in the business, that proportion is 90%.