FIIs pile into stock markets, DIIs exit
DIIs including mutual funds, insurance companies and banks were net sellers of ₹11,727.66 crore in Augus
MUMBAI: Domestic institutional investors (DIIs) retreated from the stock markets for a second straight month in August, but benchmark indices continued to rise as foreign institutional investors (FIIs) riding a wave of liquidity made their biggest investments in India in nearly 10 years.
DIIs including mutual funds, insurance companies and banks were net sellers of ₹11,727.66 crore in August, their highest sell-off since March 2019, and even higher than their July sales of ₹10,007.88 crore. Still, in 2020, they remain net buyers of Indian shares worth ₹46,646.63 crore. Against the backdrop of net outflows from equity funds and slowing systematic investment plans (SIPs) in July, mutual funds turned net sellers. This follows massive net inflows they received in March, when markets crashed in reaction to the coronavirus lockdown.
Indian markets were up 5% in August till Friday, like many other emerging markets fuelled by foreign investments. However, including Monday’s stock market fall, the Sensex is up 2.72% and the Nifty 2.84% for the month. “Though a few investors shaved off a portion of their investment to reap gains of the market rally, inflows into mutual fund schemes are declining. When equity schemes do not have inflow, allocation of funds into shares will be lower naturally. Also, post-covid, most insurance companies are concentrating in selling protection schemes rather than Ulips (unit-linked insurance plans), which by itself reduces direct investment into stock markets," an analyst said on condition of anonymity.
Another recent phenomenon is the deluge of retail investors entering stock trading, skipping the conventional route of using mutual funds.
“Retail investors are enthusiastic about direct participation, which explains outflow of funds from equity mutual funds while volume of retail trading is increasing," said Hemang Jani, head of equity strategy, broking and distribution at Motilal Oswal Financial Services.
Equity mutual fund schemes saw a net outflow in July, the first in over four years, as investors redeemed holdings. Data from Association of Mutual Funds in India showed a net outflow of ₹2,480.35 crore in July, the first sell-off since March 2016. Net redemptions in such schemes rose to a four-month high of ₹16,622.01 crore in July, up 22.9% from ₹13,520.03 crore in the previous month and from ₹12,173.81 crore in the year-ago period. SIP inflows fell to ₹7,830.66 crore in July from ₹7,927.11 crore in June.
Meanwhile, net inflows from FIIs rose to $6.35 billion in August, from a net purchase of $1.15 billion the previous month. This is the highest monthly purchase of Indian shares by FIIs since September 2010, when their net inflows stood at $6.37 billion. Since January, FIIs have bought Indian shares worth $5.06 billion, despite the risk-reward ratio for Indian markets turning unfavourable with steep valuations and weak fundamental support for equities.
Ashwin Ramarathinam contributed to this story.
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