In February, the BSE Sensex and NSE’s Nifty fell 6%, while both the indices lost 7-8% year-to-date
DIIs are net buyers of equities worth ₹19,182.58 crore so far this year.
While anxious investors around the world have been dumping risky assets such as stocks fearing that the rapid spread of the coronavirus will tip the global economy into a recession, domestic institutional investors (DIIs) have remained bullish on equities.
DIIs have pumped in ₹16,933.03 crore in February, the highest monthly inflow since August 2019, even as India’s benchmark indices have lost nearly 10% from the record high hit in January, data showed. In February, the BSE Sensex and NSE’s Nifty fell 6% while both the indices lost 7-8% year-to-date.
DIIs are net buyers of equities worth ₹19,182.58 crore so far this year. After being net sellers in November and December, DIIs turned positive with inflow of ₹2,249.55 crore in January.
Most of the DII inflow is led by insurance companies, according to Deepak Jasani, head of retail research at HDFC Securities. “Among DIIs, insurance firms are large buyers in this month. Mostly, this bulk buying is because of bottom fishing strategy. They may have seen markets’ lower level as an opportunity to buy. However, that may also mean that this trend may see a reversal when markets turn higher," he said. Bottom fishing is an investment strategy in which investors buy stocks or equities whose prices are considered undervalued.
Robust retail money that comes through systematic investment plans (SIPs) in January perhaps indicates the strong domestic liquidity parked in Indian stocks. SIP contribution in January was at an all-time high at ₹8,532 crore, according to the latest Association of Mutual Funds in India (Amfi) data. SIPs allow investors to put in fixed amounts in mutual fund schemes at fixed intervals.
Meanwhile, foreign institutional investors’ (FIIs’) confidence in Indian equities seems to be shaken. In the last four trading sessions, FIIs sold Indian shares worth $1.36 billion. However, FIIs are still net buyers of Indian equities worth $877.07 million in February and $2.24 billion in 2020 so far. In dollar terms, Sensex and Nifty have lost 8-9% whereas MSCI Emerging Markets and MSCI World indices are down around 7%.
At this juncture, corporate earnings growth is critical to justify the high valuations Indian stock markets demand amid a growth slowdown. At the current level, the Sensex trades at 17.46 times the FY21 earnings. That is expensive compared to MSCI Emerging Markets index trading at 12.08 times estimated profit for FY21, and MSCI World index trading at 15.7 times.
Sreejith Balasubramanian, economist—fund management at IDFC AMC said, “India’s growth could be impacted by the coronavirus depending on the duration and intensity of both its spread and containment measures across the world. India’s direct trade linkage to China and Hong Kong is at 9% of total exports and 17% of total imports." He said that supply chain disruptions and lower external demand would add to domestic issues, and continued risk-off capital outflows could put pressure on emerging markets currencies, although the Reserve Bank of India has been shoring up forex reserves. “However, expectations of global monetary policy easing has already started rising amid the uncertainty which still looms large," Balasubramanian said.
Among Asian currencies, India rupee lost 1.1%, Thai baht lost 5.05%, Indonesian rupiah fell 3.16% and South Korean won lost 4.8% against the dollar in 2020 so far.