As FII turn sellers, strong domestic fund inflows prop up Indian stocks

Persistent investing by domestic institutional investors (DIIs), including mutual funds and insurance companies, have lent support to Indian equities in the last three months and helped limit the losses arising from the aggressive selling by foreign institutional investors (FIIs).

DIIs have remained net buyers of Indian equities worth nearly Rs 29,500 crore ($3.93 billion) so far this month across the BSE, NSE, and MCX-SX. Of this, Indian asset managers contributed two-thirds of the quantum, stock-exchange data showed.

For the three months through December, DII investment stands at nearly Rs 64,520 crore ($8.6 billion), and this persistent buying in the last three months has provided cushion to the fall in Indian equities.

The BSE’s 30-stock benchmark Sensex declined more than 10% from its peak of 62,245.43 in October. Still, Indian equities were among the best-performing across the world in 2021, with the Sensex’s returns of about 22%.

The recent decline was largely driven by foreign portfolio investors’ (FPIs) outflows, who remain net sellers worth over $5.5 billion in the current quarter. In December alone, FPIs sold shares worth $2.5 billion, the highest since the coronavirus-induced panic selling in March 2020.

FPIs have aggressively sold shares, signalling a risk-off trade and profit-booking, amid rising concerns of monetary tightening measures by the central banks across the world fuelled by threats of a new coronavirus variant. FPIs bought Indian shares worth $9 billion in the first nine months of this year.

Nilesh Shah, group president and managing director at Kotak Mahindra AMC, believes India’s long-term growth story remains positive and the market is priced at fair valuations at present.

“Undoubtedly, yes. The correction is a good buying opportunity. One needs to look at the asset allocation. If one is an SIP investor, please continue your SIP. If you want to do some amount of top-up, today is the time,” Shah said.

Indeed, SIPs (systematic investment plans) have gained popularity among Indian households. In November 2021, SIP inflows touched a record of Rs 11,004 crore, pushing the total equity assets under management (AUM) to Rs 5.5 trillion, as per data by the industry group Association of Mutual Funds in India. Nearly 90% of SIPs are linked to equity funds.

“If you are a long-term investor, then you must maintain equal weight allocation to equity. Right now, valuations are fair. It’s neither expensive like they were in 2008 beginning nor cheap like they were in March 2020. They are fairly priced,” Shah said.

“If there is a correction in the market because of various events, increase equity allocation. If there is a rally in the market, book some profit,” he added.