Data from Bloomberg showed that DIIs, which largely comprise of mutual funds and insurance companies, injected a net of ₹ 11,140.48 crore in Indian shares year to date till June, with two more trading sessions to go. At the current estimate, these would be the lowest inflows on a half-yearly basis since the six months ended December 2014.
In the preceding six months to December 2015 and June 2015, DIIs had pumped in a net of ₹ 40,523.74 crore and ₹ 26,737.57 crore, respectively. Their net investments in local shares had added up to ₹ 67,261.31 crore in 2015, the highest such yearly inflow since 2008.
“I think SIP (systematic investment plans) flows continue to be strong. However, a lot of old money is moving out, which has not been compensated by new lump sum flows coming in. Net of SIP, inflows are not growing," said Ritesh Jain, chief investment officer, Tata Asset Management Ltd.
“Market volatility is one of the reasons that bothered investors. Money is coming in on gross basis, but since there are outflows, we are not seeing net inflows, and consequently, MF investments in equities has come off to that extent," added Jain.
Among global factors, a looming fear of a rate hike by the US Federal Reserve earlier this year (which had faded for now), concerns of a slowdown in China, volatile commodity prices, along with Britain’s shocking decision to exit the European Union have kept investors on the edge.
On the domestic front, earnings just started looking better in the March quarter, after putting up a poor show in the preceding two years, and it remains to be seen, how they pan out for the rest of the year, even as analysts had pegged a double-digit growth for Sensex net profits in the financial year 2017, and even better growth prospects for the financial year 2018.
However, Brexit may impact earnings for Tata Motors Ltd, Tata Steel Ltd and leading software exporters which have a significant exposure to Europe, and mainly UK, and these estimates may see a downgrade in days to come.
On the positive front, Asia’s third-largest economy accelerated in the March quarter of 2015-16 to grow at 7.9%, making it the fastest growing major economy in the world. Also, there are forecasts that monsoon will be above average this year, after two years of drought.
Data from capital markets regulator Securities and Exchange Board of India (Sebi) showed that MFs invested a net of ₹ 10,065 crore so far this year, indicating that most of the inflows from DIIs were from MFs. In the six months to December 2015 and June 2015, mutual funds had infused a net of ₹ 39,449.50 crore and ₹ 30,872.10 crore, respectively.
“The net outflows we had seen for the last 3-4 years have stopped in the last few months. We are seeing decent net inflows. I don’t think the fall in investment into equities by DIIs has much to do with insurance companies," said Mihir Vora, director and chief investment officer, Max Life Insurance.
While reduced risk appetite dissuaded investors from investing in MFs so far this year, some expect retail investors to return to equity schemes, as other alternatives do not seem as attractive as before.
“There was risk aversion in January and February, which largely led to slowdown in inflows, but see these inflows recovering in the second half," said Gopal Agrawal, chief investment officer, Mirae Asset Global Investments (India) Pvt. Ltd.
“The attractiveness of equities versus other products is good, as interest rates have fallen," added Agrawal pointing to other options such as bank fixed deposits.