Domestic Institutional Investors (DIIs) have been net sellers so far in August after being net buyers of the asset class for the previous 17 months.
Since the start of August, DIIs have sold around Rs4,283 crore in Indian shares, after buying a net of more than Rs3.67 trillion between March 2021 and July 2022, National Stock Exchange (NSE) shows.
So far this year, they have bought shares worth nearly Rs 2.37 trillion, helping partly offset the pain from an exodus by Foreign Institutional Investors (FIIs) as the US Federal Reserve started raising interest rates to cool inflation.
This is despite India's benchmark BSE Sensex and NSE Nifty indices rebounding from their mid-June lows and gaining around 17% each. Both indices have hit a four-month high. In this period, the Sensex advanced 16.86%, or 8,937 points and the Nifty climbed 16.98%, or 2,663 points.
Foreign investors
“A lot of money was pumped in by domestic funds, supported by retail (investors), into the markets over the last six months to absorb FII selling pressure as well as showing confidence in the Indian economy and now it’s their (DII) turn to generate momentum alpha to the money invested," said Prashanth Tapse, research analyst and Senior Vice President, Research, Mehta Equities.
FIIs have returned to the Indian markets on optimism that lower crude oil prices will help dampen inflationary pressure and prompt the Reserve Bank of India (RBI) to go slow in raising interest rates.
So far this August, FIIs have bought $4.98 billion of Indian shares while in July they bought $836 million. So far this year, FII have sold $22.74 billion.
Globally, India would be the preferred destination of FIIs as major economies are still battling inflation that’s at multi-year highs and accelerating, analysts said.
Profit booking
The current selling shows DIIs are booking some profits, either on their own volition or due to redemption requests by investors, after being consistent buyers for the last 17 months, said Deepak Jasani, Head of Retail Research at HDFC Securities.
Jasani expect this will continue until the Sensex and Nifty scale new highs, after which DIIs may again turn buyers.
Some analysts said the amount of sales by DIIs this month was too low to make a significant difference.
"If the current momentum of FII inflows continues, then we expect the markets to remain strong. If for some reason, like higher-than-expected interest rate increases or a global slowdown, we witness a reversal in FII flows, then the markets should witness a correction. We expect the markets to take a breather after the recent swift upmove," said Nishit Master, Portfolio Manager, Axis Securities.
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