Domestic institutional investors (DIIs) have pulled out more than 6,500 crore from Indian equities over the past 11 sessions, as some mutual funds faced redemption pressure after a poor show in the first two months of the year, and because institutional investors booked profits after the recent rally.

DIIs sold a net 6,743.62 crore of Indian shares during 2-17 March, provisional data from the National Stock Exchange (NSE) showed.

“It is largely because inflows into MFs have slowed down. They ended up buying when FIIs (foreign institutional investors) were selling. They are taking the opportunity of booking profits. The slowdown in inflows is accentuating it," said Vaibhav Sanghavi, managing director, Ambit Investment Advisors Pvt. Ltd.

Also, a few leading fund houses were facing redemption pressure due to performance pressure, market participants said, adding that while systematic investment plans (SIPs) were still continuing fine, lump sum outflows had taken a hit, and that is where redemptions were also coming in.

While insurance firms were receiving inflows, as investors bought their tax-saver offerings, profit-booking was not ruled out.

“We are still receiving inflows, and that is true for all companies in this industry as the March quarter is generally an active one due to tax-saving investments," said Mihir Vora, director and chief investment officer, Max Life Insurance.

“There is profit-booking taking place. We need to put the DIIs’ recent outflows in perspective that they had been heavy buyers of Indian shares earlier this year, when FIIs were selling. I would not read too much into these outflows," added Vora.

DIIs were net buyers of Indian shares to the tune of 23,366.61 crore over January and February, while FIIs dumped a net of $2.4 billion in the same period, as worries over a slowdown in China and sliding commodity prices triggered a flight to safety.

However, the Life Insurance Corporation of India (LIC), the country’s largest domestic investor, was not very active in the market, apart from the recently-concluded Container Corporation of India offer for sale, an investment manager in the know said, requesting anonymity.

Inflows into equity mutual funds fell for a third straight month in February to a 21-month low as domestic equity markets fell on weak global cues and tepid domestic earnings. Inflows in the previous month dropped to 2,522 crore, the lowest since May 2014, according to data from the Association of Mutual Funds in India.

The average assets under management (AUM) for equity funds slid to 3.5 trillion, the lowest since May 2015. To be sure, average AUMs also take into account mark-to-market losses.

Also, companies are rushing to pay dividends to shareholders before the end of 31 March after finance minister Arun Jaitley introduced a 10% additional tax on individuals with dividend income of over 10 lakh in the budget for the year starting 1 April.

This led to these stock futures quoting at a discount to spot prices.

“There is a reverse arbitrage opportunity available. Due to the dividend tax, everyone is declaring quick dividends. That is resulting into futures giving into discount compared to spot. DIIs are buying futures and selling spot," said Nilesh Shah, managing director of Kotak Mahindra Asset Management Co. Ltd.

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