Domestic investors act as buffer against FPI sell-offs

FPI investments in equity fell steeply from around $16.2 bn in ’14 to about $3 bn in ’15

By: ENS Economic Bureau | Mumbai | Published: January 2, 2016 3:00 am

Domestic institutions have staged a big comeback in 2015 with net purchases of around $10.3 billion from the Indian stock markets as against sales of $4.8 billion in the previous year, providing a strong buffer to the selling by foreign portfolio investors (FPI).

FPI investments in equity fell steeply from around $16.2 billion in 2014 to about $3 billion in 2015 as a host of global factors kept them away from emerging markets like India.

FPIs had sold stocks worth around Rs 26,000 crore in the last five months of 2015.

They also pulled out over Rs 9,000 crore from the debt market in November and December. Total investments by FPIs in equity and debt in 2015 were Rs 63,663 crore, a fall of 81.6 per cent from Rs 256,213 crore in the previous year, according to NSDL figures.

The big positive of 2015 has been the comeback of Indian investors. “Domestic mutual funds have seen strong inflows in 2015 and have been net buyers of $10 bn.

Historically, retail investors have not been the best timers of allocating capital to equities, increasing allocation when valuations have been expensive and withdrawing from markets when valuations have been cheap post a significant correction.

Whether this time it will be different only time will tell; but we hope Indian retail investors continue to allocate a portion of their savings to Indian equities ignoring near term volatility to what possibly is one of the best secular investment stories around the world,” said Nilesh Shetty, Associate Fund Manager-Equity, Quantum AMC.

The Sensex lost over 5 per cent or 1,382 points at 26,117.54 in calendar 2015. On Friday, the Sensex rose 43.36 points, or 0.17 per cent, to a one-month high of 26,160.90.

“If you look at the last 6 to 8 months, FPIs have been net sellers but the Indian market has not collapsed. That means Indian savings is building and it’s a very clear positive for India,” said Kotak Mahindra group chief Uday Kotak.

According to Krishna Kumar Karwa, managing director, Emkay Global Financial Service, the silver lining for 2015 was the continued flows received by domestic institutions, particularly mutual funds, from retail participants who saw great opportunity in exploiting the valuation arbitrage created from the earlier run-up in the benchmark indices and large cap stocks.

“Hence, mid-cap and small cap funds (and also stocks) saw phenomenal participation from retail investors, which has continued throughout 2015. Clearly, the dichotomous flows of foreign portfolio investors and domestic institutions also reflect in inverse valuation trends reflected in the declining multiples for benchmark indices on one hand and rising valuations in the midcap and small cap indices on the other,” Karwa said.

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