Domestic investors do about-turn, sell equities worth Rs 6,300 crore in November

Domestic institutional investors (DIIs) continue to slow down their investment in equity markets. Data shows they have sold stocks worth around Rs 6,300 crore in November 2022, as India's benchmark indices, the S&P BSE Sensex and Nifty 50, scaled new highs all through this week.

Since the beginning of 2022, DIIs have been buying at an average of over Rs 35,000 crore every month. The pace has slowed down from June 2022. Since June, they have been buying equities worth around Rs 5,000 crore monthly, on an average, provisional data from NSE showed.

Taking money off the table

Some analysts attributed the selling in November due to valuations turning expensive. Others attributed it to the selling pressure on account of profit-booking.

However, analysts expect DII investments to resume in the next couple of months, following healthy systematic investment plans (SIPs) and expected pause in rate hikes by the Reserve Bank of India (RBI).

"The lower inflation print will reinforce expectations of a smaller 50 basis points (bps) Fed rate hike in its next meeting and perhaps signal a further slowing in the pace of rate increases early next year. We expect a recovery in the coming quarters, led by softening of commodity prices and monetary easing by central banks. This is likely to boost demand, going ahead," said Mitul Shah, Head of Research, Reliance Securities.

Read: Nifty at record high: Is it time to stop your equity fund SIPs?

In October, equity mutual funds recorded a healthy inflow of Rs 9,390 crore while SIPs reached an all-time high of over Rs 13,000 crore.

Cautious about global economic conditions

DIIs remain cautious about the domestic as well as global economic outlook. Earnings slowed down in the September quarter due to a slowdown in manufacturing on account of rising input costs. A worsening  European economic situation and China’s strict zero-COVID policy also have investors worried.

Analysts hope that once these problems soften, they will join the equity bandwagon. "Armed with large inflows of retail money through mutual funds and easing rules for domestic institutions to invest in equity markets, we do not foresee any reason for DIIs to not participate in the markets," analysts added.

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Despite local equities hitting record highs, analysts believe the good run will continue with limited downside in the near term. However, investors should be selective and smart in terms of sector rotation and a bottom-up approach, which is likely to work best, analysts advised.

"We feel that a possible victory for the BJP in the Gujarat elections is slowly getting reflected in the markets. Moreover, with the budget round the corner, we believe that the focus of the government would be more on enhancing infrastructure and prudently managing the fiscal side of the economy before the nation goes for general elections in 2024," said  Swapnil Shah, Director, Research, Stoxbox.

"Additionally, India’s equity market outperformance vis-à-vis global peers on the back of strong corporate earnings and structural reforms would translate into a lion’s share of foreign inflows at the start of 2023, compared to other emerging economies," Shah added.