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Business News/ Markets / Stock Markets/  Markets may not get home support in a hurry as domestic investors pull out
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Markets may not get home support in a hurry as domestic investors pull out

So far in June, domestic institutional investors have sold shares worth over ₹1,973, the highest in 2020. This marks a complete reversal of DII flows, from a record purchase of ₹55,595 crore in March

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MUMBAI: Domestic fund flow may continue to fluctuate in the coming days as corporate earnings for the March quarter have remained tepid and management commentaries highlight an uncertain near-term outlook.

So far in June, domestic institutional investors (DII) have sold shares worth 1,973.06, the highest in 2020. This marks a complete reversal of DII flows, from a record purchase of 55,595.18 crore in March, when benchmark indices had slumped over 20% after the government imposed a nationwide lockdown to contain the spread of the deadly coronavirus.

However, despite a large exodus of DII money in June, markets have remained 4% higher in the month. Around $2.8 billion foreign institutional investor (FIIs) money has come into the markets, helping keep liquidity intact.

In June, the benchmark Sensex is up 4% while MSCI Emerging Markets index gained 6%. However in 2020 so far, Sensex is down 18% while MSCI EM index is down 5.5%.

The DII sell-off in June can be attributed to profit booking, said Harish Krishnan, Fund Manager (Equity), Kotak Mahindra Asset Management Company.

"DIIs bought heavily into the fall in February & March, and after a brisk rally in Indian equities, are booking profits. Nifty, excluding-financials, have almost recovered from their highs seen in January of this year, with many companies bouncing back sharply. Given the nature of this pullback as well near-term uncertainties of earnings, as India Inc emerges from lockdown, there has been some profit taking," he said.

Besides profit booking, large secondary trades as well as primary offerings is also a factor behind the DII sell-off

According to Mihir Vora, CIO, Max Life, large stock offerings via QIP, private equity sales, promoter stake sale and rights issue, which have absorbed a lot of money, could be one reason for DIIs sell-off in the month. "Funds may also be selling to generate funds for these placements," he added.

However, analysts feel that domestic liquidity in the stock markets may be inconsistent as labour shortages and execution of long-term reforms may make economic recovery long and stressful.

“Economic conditions may improve from bottom levels but it will take few quarters for businesses to reach pre-covid levels and some more time to see a full recovery depending on many factors including monsoon and government reforms. Volatility in markets is expected to remain going forward. DIIs are unlikely to keep buying, in a market condition, with low growth prospects. Near-term data on demand recovery, capacity utilization and labour issues in consumption-related sectors will be key indicators," said an analyst, speaking on the condition of anonymity.

While mutual fund inflows witnessed a slowdown in May, industry experts do not see any major issue of capital flows for DII.

“Mutual fund systematic investment plan (SIPs) are continuing and insurance companies are seeing premium inflows. The discretionary flows to mutual funds are linked to market momentum and sentiment - it is this part which has seen a slowdown, but that’s not a structural issue."

Equity mutual funds’ average asset under management (AUM) at an aggregate level declined 1.45% on-month to 6.77 lakh crore in May, led down by mark to market (MTM) losses in the underlying market. Net inflow into equity mutual fund schemes fell 11.6% in May to 5,666.34 crore from April from 5,847.07 crore in May last year, according to Association of Mutual Funds in India (Amfi) data.

The money of retail investors routed through monthly SIP contributions saw a marginal dip to 8,123.03 crore in May from 8,376.11 crore in April.

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Published: 14 Jun 2020, 06:25 PM IST
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