Mumbai: Domestic investors turned net buyers in fiscal 2016 after being on the sell-side for the last six years. Local funds continued their equity purchases throughout the year to record levels despite a 10% fall and volatility in the benchmark indices.

Domestic institutional investors (DIIs) have purchased Indian shares worth 83,333.87 crore in the cash segment so far this fiscal, the highest ever, showed data from the Securities and Exchange Board of India (Sebi), the capital markets regulator.

A huge sum was channelled through mutual funds. Close to 80%, or 65,861.7 crore, of net domestic inflows were invested into Indian equities in FY16—a record for any fiscal, Sebi data as of 23 March showed.

Market experts said that DIIs’ buying provided a counter balance to persistent selling by their foreign counterparts and helped narrow losses in Indian equities. A large number of retail investors started shifting their investments to financial assets from physical ones because of the recent underperformance in gold and real estate, while a downward interest rate cycle prompted investors to slow down on bank fixed deposits.

Sundeep Sikka, president and chief executive, Reliance Capital Asset Management Co. (AMC) Ltd said that a sharp rise in equity mutual fund inflows shows the underexposure in equities.

“We have seen a large amount of money invested through SIPs, which is long-term money and not subject to the volatility in the market. We expect the trend to continue and many more investors sitting on the sidelines will begin to invest," Sikka said.

Separately, data from the Association of Mutual Funds in India (Amfi) showed total equity inflows worth 1.68 trillion for eleven months ending February 2016. Last fiscal, total equity inflows stood at 1.58 trillion.

Equity mutual funds have seen net inflows for the past 22 straight months to February 2016.

Folios, or the number of investor accounts, across equity schemes saw a 15% rise from last year to 3.81 crore as of February 2016, data showed.

Assets under management (AUMs) across all equity schemes rose to 44.44 trillion as of February 2016 compared with 35.7 trillion for full-year fiscal 2015.

Overseas funds, the biggest drivers of Indian equities for more than a decade, pulled-out $2.51 billion in fiscal 2016 to register the worst flows since the 2008 financial crisis.

Last fiscal, foreign funds had purchased $18.07 billion worth of shares in the cash segment, data showed.

HSBC Ltd remains cautious on India, adding that weak business sentiment, overcapacity, stressed assets in the banking system and the slow pace of implementation of government infrastructure projects are just a few of the causes of weak credit demand.

“We argue that earnings downgrades will continue to weigh on the local equity market. The transmission of monetary policy does not seem to be functioning successfully in India," HSBC’s Hong Kong-based equity strategist, Devendra Joshi said in a note to investors.

The benchmark Sensex has lost close to 2,619 points or 9.37% since 1 April 2015 and largely reflects selling by foreign portfolio investors (FPIs). The 30-share gauge had risen close to 25% last fiscal—the best in five years.

In terms of asset-class performances, gold has beaten all instruments by yielding 10.86% returns so far this fiscal. During the three months to 31 March, the yellow metal has risen close to 20%, the best quarterly performance since July-September 1986, Bloomberg data showed.

This outperformance follows three-years of underperformance to equity markets. Gold prices declined an additional 9% last fiscal after losing 3% in the FY14, Bloomberg data showed.

Christopher Wood, managing director and chief strategist, CLSA Ltd pointed out that short covering played a major role in gold’s rally. He was also not completely convinced that gold has bottomed after the bear phase since 2011.

“After the 28% decline suffered in 2013… Gold’s rally should be seen in the context of the record high short positions that prevailed on Comex late last year. Net short positions in gold held by ‘managed-money’ investors rose to a record high of 27,219 contracts in the week ended 15 December. Since then, they have turned to a net long position of 104,370 contracts in the week ended 1 March," Wood said in his newsletter titled ‘Greed & Fear’ on 10 March.

In his earlier newsletter on 3 March, Wood had highlighted an increased chance of foreign selling in Indian markets due to a lack of evidence of renewed cyclical momentum and credit growth running only slightly above nominal GDP growth.

Ronald-Peter Stoeferle, managing partner and fund manager, Incrementum AG correlated the declining interest in gold to the strong reduction of gold price volatility.

“It appears as though faith in the omnipotence and infallibility of central banks is at an all-time high. Should the omnipotence of central banks be questioned by the markets, it could cause a fundamental change in perceptions and help gold regain its former respect and reach new heights," Stoeferle said, adding that his long-term price target on gold stands at $2,300 an ounce.

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