Domestic institutional investors (DIIs) have invested more than Rs 4 lakh crore in the stock market this year, setting an annual record with two months to spare.
This significant surge in investments coincides with a sell-off by foreign investors in October, which is primarily driven by geopolitical tensions. FPIs have been net sellers at nearly Rs 68,000 crore in October so far.
Divam Sharma, founder and fund manager at Green Portfolio PMS, believes that the latest DII numbers indicate a significant structural shift toward equities. He said that this trend is being driven by increasing retail investor participation through mutual funds, which is expected to continue bolstering the markets.
According to Sharma, this movement will help maintain high valuations and stabilise the market, even amid fluctuations in FII activity. He expressed confidence in the strength of the Indian market, encouraging the investor community to stay committed to their investments in Indian equities.
Meanwhile, the first trillion rupees of DII investments in 2024 was reached in 57 trading sessions, the second trillion in 40 sessions, the third trillion in 60 sessions, and the fourth trillion in a record 31 sessions. In October, DIIs invested over Rs 60,000 crore, the highest monthly inflow on record, even as foreign investors sold almost an equivalent amount of equities. This also marked the 15th consecutive month of net buying by DIIs.
India's benchmark indices, Sensex and Nifty, have posted gains of over 13 percent and 15 percent, respectively in CY24, while the BSE MidCap and SmallCap indices have surged by more than 32 percent and 34.5 percent. However, in October till date, both Sensex and Nifty have declined by 3.3 percent each, marking their first drop since May 2024 and the sharpest decline since December 2022.
According to Deepak Jasani, Head of Retail Research at HDFC Securities, the consistent equity inflows every month into mutual funds and the cash raised by them due to profit taking and cautious view of fund managers have helped domestic institutions buy equities on down days or corrections. Their buying rises to offset the FPI sales on certain days.
In the current calendar year till date, FIIs have invested around Rs 32,776 crore in Indian equities. October, however, has seen huge selling by FPIs driven largely by geopolitical tensions. Additionally, weak Q2 corporate earnings on the domestic front further dampened investor sentiment. Some investors also anticipate that with Chinese and Hong Kong stocks gaining momentum following economic stimulus measures, FIIs might continue to exit Indian markets due to relatively high valuations.
"We have a cautious view on a short-term basis due to the risk of downgrade in corporate earnings since the preview of the ongoing Q2 result is subdued. The degree of recovery in profit is below par owing to the lack of recoup in government spending, rural and global demand. Further, high global inflation is impacting operating margins. There is a plausibility for India to underperform due to consolidation of the premium valuation, which it has been benefiting since 2021", said Vinod Nair, Head of Research, Geojit Financial Services.
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