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Domestic institutions not part of FPI-led bull rally

Domestic institutions, domestic stock markets, domestic institutional institutions, foreign portfolio investors, FPI bull rally, indian express, indian express news


When the domestic stock markets on Tuesday hit another record high, domestic institutional institutions (DIIs) were sellers, refusing to join the buying euphoria. While foreign portfolio investors (FPIs) bought stocks worth Rs 2,134 crore, DIIs made net sales of Rs 785 crore during the day.

Unlike FPIs, domestic institutions (DIIs) led by LIC, insurance companies and mutual funds are not very active in the ongoing bull run. On Monday, FPIs invested Rs 1,995 crore but DIIs pulled out Rs 337 crore. Aided by FPI buying, the Sensex soared by 274 points, 0.42 per cent, to a record high of 65,479.05 and the NSE Nifty soared by 66 points to 19,389 on Tuesday.

According to NSDL data, foreign investors invested around Rs 60,000 crore in April-June period of 2023. However, DIIs invested just Rs 3,368 crore during the period. That was the period when markets rose by over 10 per cent amid the easing of inflation and the RBI decision to keep interest rates steady.

DIIs, who were big buyers when the market was down in the second quarter and fourth quarter of FY2022-23, are now sellers on many days. In the last quarter (January-March) of FY 2023, DIIs had bought stocks worth Rs 83,000 crore while FPIs sold stocks worth over Rs 50,000 crore. “Domestic institutions are contrarians. They buy when other big operators like FPIs sell… and sell when FPIs and others buy. They have made good profits through this strategy,” said a fund manager.

LIC, the largest investor in the stock market, normally sells stocks when the market soars to new peaks. “We sell when others buy, and buy when others sell. LIC has been making consistent profit from its market operations in the last several years. LIC is a long-term investor in the markets,” said an official.

“Clearly, DIIs are sitting on a good profit on investments made by them in the last quarter of FY2023. They are not accumulating stocks at high levels. Ideally retail investors should follow the investment strategy being followed by DIIs. Then they won’t make losses,” said a market analyst. There’s a perception in the market that the stock markets are entering into an overbought zone with valuations hitting new highs. If there’s a major correction, DIIs won’t get any major impact while FPIs and retail investors – normally aiming at making a fast buck — who invest at high levels, will suffer losses.

The FPI sell-off of Rs 1.21 lakh crore in calendar year 2022 was absorbed by DIIs to a great extent, preventing a major crash in the markets since March 2022. A global risk-off sentiment amidst increased risks to global growth contributed to the decline in global equities including India. There were domestic factors at play as well, including high inflation and rising interest rates. Inflows into mutual funds, however, remained robust, as investors turn risk-averse.

Despite huge volatility in stock markets and sustained selling by FPIs, equity mutual funds have been attracting inflows. Significantly, inflow through SIP (systematic investment plan) stood at an all-time high of Rs 14,748.68 crore in May, indicating that retail investors continue to hold confidence on equity investments.

Mutual funds have assets worth Rs 16.56 lakh crore in equity-oriented schemes as of May 2023. The combined strength of MFs, LIC and other insurance companies like New India Assurance can neutralise the impact of FPI buy or sell operations. FPIs are considered as “hot money” which can exit Indian markets faster than they entered.





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Explained: What investors should look out for before putting money in an IPO


The sharp revival in equity markets has catalysed the primary markets, and as many as 27 companies have filed offer documents with the Securities and Exchange Board of India (SEBI) over the last couple of months.

With foreign portfolio investors (FPIs) making a strong comeback — the benchmark Sensex has reclaimed the 60,000 mark — merchant bankers have lined up public issues to take advantage of bullish domestic retail and FPI investor sentiments. While there has been no new listing since May 24, the cycle is set to restart with the listing of Syrma SGS Technology later this month. The issue closed for subscription on Thursday. Many more are lined up — Utkarsh Small Finance Bank, Fincare Small Finance Bank, and GO Digit General Insurance have filed their offer documents with SEBI.

How are the IPOs that came during the previous market boom faring?

2021 witnessed a record number of IPOs and fund-raising. While 63 companies came with public issues to raise funds amounting to a record Rs 118,723 crore from the equity markets in the calendar year, only 18 issues have hit the market in 2022. Collectively, they have raised Rs 40,310 crore — and half of this amount has come from just one issue: LIC.

A large number of public issues that hit the market amid soaring valuation in 2021 are now trading below their issue price. Data from NSE show that 27 of the 63 issues that hit the market in 2021 are trading below their issue price, including high-profile ones such as One 97 Communication (Paytm) and Zomato.

On the other hand, of the 16 issues that hit the market in calendar 2022 when the markets were less buoyant and the indices were on a decline, only four are trading below the issue price.

“We always witness a bunching-up of issues when the secondary market is buoyant. Most issues that come in times of sharp rally in the markets tend to be overpriced, and are susceptible to sharp declines when the market weakens. On the other hand, IPOs that come during normal times fare much better as they tend to be priced reasonably,” a fund manager who did not wish to be named, said.

So should you invest in this IPO rush?

The 18 per cent rally in the benchmark indices at the BSE and NSE since June 17, coming on the back of sharp FPI flows and a revival in investor sentiment, have encouraged merchant bankers to line up issues. For retail investors looking to play in the primary market, however, experts advise caution. They say that retail investors should seek out good-quality stocks from the bouquet of existing listed companies, and pick up the ones that are undervalued and not leveraged.

Several high-profile new age tech companies that came with their issues in 2021 are trading below their offer price — market participants say investors should be cautious, as there is a lot of irrationality around start-ups when there is liquidity in the market.

“When the market weakens, investor confidence in these companies gets shaken even on minor negative news flows. In the case of most of these companies where profitability is not visible for the next five years, it is very tough for an investor to stay invested when the market weakens, and so one has to be very careful about which company and at what valuation they are investing,” the head of research with financial services firm said.

What should you look for before investing in an IPO?

An IPO is an asset class that is a derivative of the secondary market, and its performance is linked to the sentiment in the broader market. Demand tends to be strong when investor sentiment is buoyant, and in such a scenario they get higher investor interest and fare well. However, that is not true for all cases; it also depends upon the pricing of the issue. Hence, investors need to do a thorough study of the company — the quality of promoters, business fundamentals, and the financial and peer review analysis — before investing in an IPO.

Corporate governance practices in the company should be given top priority. A good peer review is a must: Investors must study other listed companies in the sector and compare their growth, and their PE ratio (market price to earnings per share). If the company coming with an IPO is demanding a higher valuation, investors can consider avoiding it.





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‘Counterbalancing’ in Indian markets: Domestic investors buy as FPIs sell


As FPIs continued to pull out funds from Indian equities in the quarter ended June 2022 amid rising inflation, interest rates and concerns over global growth, their share in NSE-listed companies fell to a 10-year low of 19.2 per cent.

In the same period, however, domestic institutional investors (DIIs), who continued to invest in Indian markets, raised their holding of Indian equities to an all-time high of 14.06 per cent.

According to data collated by primeinfobase.com the domestic retail holding (individuals holding up to Rs 2 lakh) also stood strong in April-June despite the Sensex witnessing a fall of nearly 15 per cent in the quarter from its closing on March 31, 2022. The retail share in National Stock Exchange (NSE)-listed entities stood at 7.4 per cent at the end of June, marginally lower over its highest share of 7.42 per cent seen in the quarter ended March.

“This further showcases the rise of domestic investors and the huge counterbalancing role they have played to foreign investors. To also put this in perspective, as on March 31, 2015, FPI share was 23.30 per cent while the combined share of DII, retail and HNI was just 18.47 per cent. The combined share of DII, retail and HNI now stands at an all-time high of 23.53 per cent,” said Pranav Haldea, managing director, PRIME Database Group.

During the quarter, while net outflows from FPIs stood at Rs 1,07,340 crore, net inflows from DIIs amounted to Rs 1,28,277 crore. The data shows that the gap between FPI and DII holding decreased to its lowest level in this quarter as DII holding is now just 26.77 per cent lower than FPI holding. (On March 31, 2022, DII holding was 31.99 per cent lower than FPI holding).

The FPI to DII ownership ratio too fell to a new low of 1.37 as on June 30, from 1.47 as on March 31. Over a 13-year period (starting June 2009), while FPI share has increased from 16.02 per cent to 19.2 per cent, DII share has risen from 11.38 per cent to 14.06 per cent.

The share of domestic mutual funds in companies listed on the NSE rose for the fourth quarter running and reached a 2-year high of 7.95 per cent as on June 30, 2022, up from 7.75 per cent as on March 31, 2022. This was after five quarters of consecutive decline from March 31, 2020 (7.96 per cent) to June 30, 2021 (7.25 per cent). The share has grown on the back of net inflows by domestic mutual funds of Rs 73,857 crore in the June quarter.

LIC’s share (across 286 companies where its holding is more than 1 per cent) rose to 3.92 per cent as on June 30, 2022 from 3.83 per cent as on March 31, 2022. Share of high net worth individuals (HNIs) (individuals with more than Rs 2 lakh shareholding in a company) in NSE-listed companies also declined to 2.08 per cent as on June 30 from 2.21 per cent on March 31.

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While disclosure of holdings of FPIs by name is available only for holdings in a company greater than 1 per cent, Haldea said it is time for complete details of all their holdings to be made mandatory to be disclosed in India.

The share of the government (as promoter) in companies listed on the NSE saw a huge spike and reached 7.15 per cent as on June 30, from 5.48 per cent as on March 31. According to Haldea, this was primarily on account of the mega IPO of LIC.

The share of private promoters in NSE-listed companies declined to 44.33 per cent as on June 30, from 45.12 per cent on March 31.





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Rupee under pressure as FPIs rush to the exit door, pull out Rs 2 lakh crore since October


The ongoing sell-off by foreign portfolio investors (FPIs) has led to withdrawal of over Rs 2,00,000 crore from the domestic stock markets since October last year. The Russia-Ukraine conflict has added to the nervousness of FPIs, already bracing for interest rate hikes by the US Federal Reserve. The FPI pull-out has hit the rupee, with its exchange rate against the dollar falling below the 76 level to 76.16 despite heavy RBI intervention.

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On March 4, FPIs pulled out Rs 7,631 crore from the stock markets, taking the total outflows to Rs 18,614 crore in the last three sessions of March as Russia intensified the attack on Ukraine and oil prices soared. This outflow has come after withdrawals of

Rs 45,720 crore in February and Rs 41,346 crore in January. With this, FPIs have pulled out

Rs 2,06,646 crore (excluding FPI investments in IPOs) since October 1, 2021.

If the situation in Ukraine worsens and FPI sales continue, the rupee will cross the 77 level against the dollar in the coming days, analysts said. While banks have been purchasing dollars to facilitate FPI pull-out, the RBI has been selling dollar from its forex kitty to salvage the rupee, said a banking source.

During the week ended February 25, India’s foreign currency assets declined by $ 2.228 billion. “The Russia-Ukraine conflict is hurting Indian rupee, bonds and equities via three channels: oil prices, US dollar Index and global equity prices,” said a Kotak Securities report.

Analysts said there could be a further temporary shock if things worsen more in Europe or, for that matter, a new front opens up in Asia. While the rupee is likely to remain under pressure, the RBI with its forex kitty of $631 billion will be able to prevent a big slide in the currency.

However, domestic institutional investors (DIIs), led by LIC, mutual funds and insurance companies, have been stepping up their purchases, absorbing most of the FPI sales. “There is a tug-of-war going on between FPIs and DIIs,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Countering the FPI strategy, DIIs have invested Rs 12,599 crore in March 1-4, adding to their total investments of Rs 1,42,872 crore since October 2021. DIIs invested a record amount of Rs 42,084 crore in February, their highest monthly investment since they put Rs 55,595 crore in March 2020 when Covid pandemic hit the country.

Despite a correction of around 13 per cent from the peak in Nifty, FPIs continue to sell since market sentiments have been impacted globally by the uncertainty triggered by the war and the surge in crude prices. This is likely to impact the IPO market and LIC’s plan for listing this fiscal and push up the current account deficit (CAD).

The Sensex has already fallen 5 per cent, or 2,899 points, to 54,333.81 since February 24 when the Russian invasion of Ukraine started. Global markets are spooked with the events happening in Europe, which are causing volatility. “FPIs have been sellers for almost 6 months now. Commodities are hitting highs across the board – oil, coal, metals and agri-commodities,” said Vineet Bagri, managing partner, TrustPlutus Wealth.

The FPI pull-out is dampening the sentiment in equity and forex markets. “Their impact on markets is visible, with increase in volatility and declining equity prices. However, the fact that this selling by foreign investors has been absorbed by domestic investors bodes well for the outlook of Indian markets,” Bagri said.

According to a Morgan Stanley report, supply constrained oil price rises are bad for India. Indeed, the recent 25 per cent jump in oil prices will expand the current account deficit by 75 bps and inflation by 100 bps on an annualised basis, it said.

US Federal Reserve Chair Jerome Powell recently said he will back a quarter point rate increase when the Fed meets March 15-16, putting to rest debate over starting a post-pandemic round of rate hikes with a larger than usual half-point increase.





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DIIs accumulate 12,818 crore of stocks in last 6 sessions: Domestic institutions bought stocks as FPIs rushed out during market rout


Domestic institutional investors (DIIs) were active buyers last week when stock markets faced a nervous sell-off with foreign portfolio investors (FPIs) dumping stocks across the board.

While foreign investors exited from stocks worth Rs 25,000 crore ($3.34 billion) in the last six sessions, DIIs accumulated stocks worth Rs 12,818 crore during the same period. Domestic institutions have been using every major correction to buy into stocks and reshuffle their portfolios. The benchmark Sensex nosedived 2,901 points, or 4.83 per cent, to 57,107.15 in the last six sessions.

On Friday, when the Sensex fell 1,688 points, FPIs pulled out Rs 5,785 crore from Indian markets while DIIs invested Rs 2,294 crore, according to data available from stock exchanges. On November 24, when the Sensex declined by 320 points, FPIs sold Rs 5,122 crore stocks but DIIs were buyers of Rs 3,809 crore worth of stocks. Insurance companies led by LIC and mutual funds are the major players in the market, absorbing the sales triggered by FPIs.

“Domestic institutions follow the policy of ‘buy when others sell’. They are long-term players and utilise every opportunity to get stocks cheap,” said an analyst.

In November so far, FPIs have taken out Rs 31,124 crore from Indian markets while DIIs invested Rs 20,598 crore. LIC alone usually invests around Rs 50,000 crore in the markets every year.

Analysts are worried about the sell-off continuing in the wake of several uncertainties relating to the new Covid variant and tightening of the monetary policy in the United States. The sharp correction in the market on Friday was mainly triggered by concerns arising out of the new strain of the virus spotted in Africa.

In March 2020, when the Covid pandemic first hit the world, the market crashed with FPIs pulling out Rs 65,816 crore. However, DIIs which bought Rs 55,595 crore worth of stocks made a good profit as markets bounced back subsequently.

Setting the stage for further downward pressure on other world markets, the Dow Jones Industrial Average in the US on Friday dropped about 905 points, or 2.5 per cent, for its worst day of the year, while the S&P 500 and Nasdaq Composite slid 2.3 per cent and 2.2 per cent, respectively. The Dow was down more than 1,000 points at session lows.

The big question is whether retail investors will follow the exit route taken by FPIs. Retail investors have been pumping money into the stock markets through SIPs of mutual funds in the last 12 months. Another possible impact of the market rout will be on the IPO market which has been witnessing a flurry of activity with the entry of high-profile unicorns.

The FPI sell-off can accelerate if the US tightens monetary policy. “Foreign brokerages had downgraded India early this month on high valuations. India’s valuations vis-a-vis emerging market peers also became stretched. The further negative trigger came from the RBI observation that valuations are stretched,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

The market action next week will depend on how the new virus strain spreads and its impact on the world. There are concerns over rising inflation in the minutes of the recent US FOMC meeting, signalling higher chances of an aggressive policy tightening. Worries over overvaluation and a possible rate hike have been haunting foreign investors.



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