Domestic institutional investors (DIIs) were big buyers in the last three days when the markets faced volatile movements amid capital outflows by foreign portfolio investors (FPIs). DIIs, led by mutual funds and insurance companies, pumped Rs 16,313 crore into the markets in the last three days with Rs 9,155 crore coming on Monday when the market crashed by 2.5 per cent. However, FPIs pulled out Rs 16,918 crore ($ 2 billion) in the last three days amid concern over a slowdown in the US economy, Japanese market crash and Middle East tension. Mutual funds which are sitting on a cash pile are major investors in the market. Net inflows into equity mutual fund schemes grew by 17 per cent month-on-month to an all-time high of Rs 40,608.19 crore in June, from Rs 34,697 crore in May. This money is finding its way into the stock markets, analysts said. On the other hand, life insurance companies mobilised Rs 89,726 crore premium from customers in the first three months of FY25 with Life Insurance Corporation alone accounting for Rs 57,440 crore. “DIIs have become a major counterbalancing force against FPIs in the market. Whenever FPIs pull out money, DIIs come forward to buy shares,” said an analyst. On Wednesday, when the Sensex rose by 1.11 per cent, or 875 points, to 79,468.01 and the NSE Nifty index shot up by 1.27 per cent to 24,297.50, FPIs withdrew Rs 3,314 crore from the market while DIIs invested Rs 3,801 crore. According to Dhiraj Relli, MD & CEO at HDFC Securities, though India is relatively insulated from the world, it could still get impacted if the global risk appetite is negatively impacted affecting the FPI flows and India’s exports could get hurt. The outcome of the US presidential elections (Nov 2024) and India state elections (Oct 2024) are some other triggers to watch out for, he said. “Global sentiments need to stabilise for Nifty to start recovering. All cyclical and even IT stocks came under selling pressure on fears of global slowdown. Traders can start bottom fishing for small upsides (with stop losses in place) while investors may wait for some stability,” he said. Risk averse investors may look to take profits partly and lighten their equity portfolio. They could sit on cash for some time and then look to deploy it after a reasonable price and/or time correction, Relli said. “Going forward, there are some developments that can impact FPI flows. The sharp drop in job creation in the US and the rising unemployment indicates the rising possibility of a recession in the US, which, so far, the market has ruled out,” said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. The possibility of a rate cut by the Fed in September is very high. Consequently, the US 10-year bond yield had fallen sharply to 3.79 per cent before recovering to 3.94 per cent. Even though this is positive for FPI inflows into emerging markets like India FPIs may think of pulling more money out of India since India is the most expensive emerging market now. The developments in the US economy and markets in the coming days will set the trend for FPI in August, he said.
