FIIs turn buyers, retail investors turn sellers as roles reverse: Kotak Institutional Equities

FPIs have purchased $2.6 billion in the past 10 days.

Kotak Institutional Equities pointed out that the ‘flows’ of FPIs, DIIs and other investors have seen several twists and turns in the past few weeks. After embarking on a steep selling spree, foreign institutional investors have turned buyers, while on the flip side, retail investors are selling their direct holdings, but buying through mutual funds.

"The plot of the Indian market can be tough to follow, but the ending is reassuringly the same," quipped Sanjeev Prasad, MD and Co-head of Kotak Institutional Equities, in a report.

The sudden shift in the ‘direction’ of flows between FPIs, DIIs and other investors in the cash market versus the trend of the past six months possibly reflects the changed expectation of
market returns among the different participants, said Kotak.

"Our analysis of flows shows that retail investors have possibly turned net sellers in the cash market on a direct basis in recent weeks after being perennial buyers (directly and through MFs) for a long period of time," the brokerage wrote.

FPI flows have been positive in the past few days versus large negative flows in the previous six months. This may reflect a change in sentiment with some investors finding value in parts of the market after the severe correction in the market. On the flip side, direct retail flows have turned negative in the past few weeks versus the large positive flows seen for the past several months.

"Institutional investors have been focused on retail flows to get ‘comfort’ about the market, while retail investors may have looked at trailing returns as their lodestar. The ‘switch’ in the roles of the protagonists is interesting and adds to the suspense," the report added.

While investors can spend a great deal of time on flows or prices to figure out the next moves of the market or they can focus on the price-value proposition. "The former is more exciting given the inherent daily action in flows and continuous action in prices. The latter is dull as the value of a stock hardly change but is a better way to find some bearing in a world of constant noise," said Kotak.

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