Even as the foreign portfolio investors have been making an exit from Indian markets amid concerns over global growth and pulled out a net of Rs 5,879 crore from the Indian equities in January 2019, the domestic institutional investors seem to be playing the counterbalance with fresh investments of over Rs 3,105 crore in the same period.
The trend is in line with the pattern seen over the last couple of years where DIIs have been seen to be stepping in at a time when FPIs are making an exit from the domestic equity market. While the FPIs pulled out a net of Rs 33,553 crore from the Indian equities in the calendar 2018, the DIIs pumped in a net of Rs 109,366 crore primarily driven by investment from mutual funds that have witnessed a constant stream of strong fresh inflows over the last few years.
Indian equities get much needed support from DIIs
Strong participation by domestic institutional investors on the back of strong retail inflow of funds into mutual funds has provided stability to the markets. Even as FPIs pulled out a net of Rs 33,553 crore from Indian equities in 2018, the Sensex closed the year with a gain of 6 per cent, primarily driven by investment from the DIIs who invested a net of Rs 109,366 crore in the domestic equities in 2018. This has provided a much needed support to the Indian equities which lacked earlier when markets were susceptible to FPI outflows.
However, there have been occasions when the FPIs have made strong investments and the domestic institutional investors stayed on the sidelines. For example in November and December 2018, while the FPIs pumped in a net of Rs 8,583 crore, the DIIs invested only Rs 1,175 crore. But as FPIs turned net sellers in January with net outflow of Rs 5,879 crore, the domestic institutions entered to take fresh positions.
Market experts say that the the strong DII participation is a result of a strong monthly inflow of funds into mutual fund schemes over the last four to five years which has strengthened the DII participation in the market.
“Unlike in the past, the strong inflow of funds into mutual funds gives them the power to act as a domestic counterbalance to FPI outflow. Earlier when FPIs pulled out funds, markets used to fall sharply as DIIs were not strong enough to provide support to the market, however, now the domestic fund flow into MFs is helping them act as a counterbalancing force. It also helps arrest a sharp fall in the markets when FPIs leave India and that’s good for the overall stability of the market,” said CJ George, MD, Geojit Securities.
A look into the fund flow by FPI and DIIs into Indian equities over the last 10-years shows a sharp contrast in investment pattern. In the seven year period between January 2008 and December 2014 the FPIs pumped in a net of Rs 5 lakh crore into Indian equities, whereas the DII pulled out a net of over Rs 55,000 crore from the markets. By contrast, over the last four calendar years between January 2015 and December 2018 while FPIs have invested a net of Rs 56,000 crore, the DIIs pumped in a net of Rs 3.04 lakh crore.
A look into the net inflows into equity schemes of mutual funds shows that over the last four calendar years, they have received a net inflow of Rs 3.81 lakh crore and this has been a steady flow of funds for them.