Domestic institutional investors (DIIs) have turned net buyers of Indian stocks in the last few days even as the market has started to falter amid expectations of aggressive rate hikes by global central banks.
DIIs have bought over Rs 10,000 crore of shares in the last seven sessions. They were net sellers in August and the first half of September. In August, DIIs sold Rs 6,932 crore of stocks while in the first half of September the outflow was Rs 3,100 crore.
Indian markets have dropped for nine out of the last 12 sessions. Both the Sensex and Nifty have lost around 6.3 percent each since September 13. The Sensex dropped around 3,765 points while the Nifty declined 1,136 points over this period.
To be sure, DIIs have always supported local equities whenever there was a downturn in the market and selling pressure from foreign investors.
“FPIs (foreign portfolio investors) are expectedly getting nervous due to risk-off sentiments prevalent globally post the relentless rise in interest rates. DIIs, on the other hand, seem to be deploying part of the extra cash they had accumulated over the past few months and insurance companies are entering their peak period in terms of collections for the current fiscal. If the markets turn up sustainably, DIIs could start receiving fresh monies in their funds and this situation of DIIs being buyers could continue,” said Deepak Jasani, head of retail research, HDFC Securities.
However, Jasani warns investors that if the markets remain where they are or correct more, DIIs could stop being aggressive buyers and conserve some cash for later deployment.
Since mid-June, both the Sensex and Nifty have outperformed international markets and have shown strong resilience amid global uncertainties. This was largely supported by strong domestic fundamentals, relentless buying by DIIs and strong retail participation, analysts said. The recent rally since mid-June has made valuations fair and at a premium to global peers. Following the hike in rates by the US Federal Reserve, markets globally saw a downturn as worries persist about aggressive policy tightening by the US central bank.
“Some profit-booking was witnessed as the upside from here seems limited. Moreover, India is not completely decoupled from global macros and could see some repercussions, despite the favourable inherent macros. DIIs have again turned buyers of late, and are seen accumulating on dips as India remains one of the fastest growing economies in the world,” said Sneha Poddar, AVP, research, Motilal Oswal Financial Services.
Foreign investors remained net sellers for the fifth straight session, selling around $1.51 billion in domestic equities, and analysts expect this selling pressure to continue.
All eyes are now on the Reserve Bank of India’s bi-monthly policy which will be out on September 30. “We expect the MPC (monetary policy committee) to hike rates by 50 bps (basis points) in end-September 2022 and turn data dependent thereafter, taking a cue from the latest CPI (Consumer Price Index) prints and the strength of the Q2 FY2023 GDP growth,” ICRA said in a recent note.
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