DIIs put in Rs 18,277 crore hoping for attractive valuations following demonetisation, while the FIIs pulled out $2.7 bn on concerns over EU and the US presidential elections. Deepak Korgaonkar and Puneet Wadhwa report.
Domestic institutional investors -- banks, domestic financial institutions, insurance, new pension scheme and mutual funds -- pumped Rs 18,277 crore into the Indian markets in November -- the highest since the Bombay Stock Exchange started maintaining the data since calendar year 2005.
Foreign investors, on the other hand, pulled Rs 18,244 crore ($2.7 billion) from the domestic market this month, one of the worst monthly sell-off since August last year, data from the National Securities Depository Limited show.
The S&P BSE Sensex and Nifty50 index have lost 4.6 per cent each, their sharpest monthly decline since February 2016, when the benchmark indices fell 7.5 per cent each.
“FIIs (foreign institutional investors) have been withdrawing largely on the concerns regarding the European Union and the outcome of the US presidential election that put emerging markets out of favour. That apart, there have been concerns regarding demonetisation. Domestic investors, on the other hand, have used this opportunity to buy, thinking that the demonetisation impact will not last long and the fact that stocks were available at attractive valuations,” explains U R Bhat, managing director, Dalton Capital Advisors.
Data from the Securities and Exchange Board of India show that mutual funds invested a net of Rs 13,159 crore in November, indicating that most of the inflows from DIIs were from MFs.
Thus far in current calendar year 2016 (CY16), DIIs pumped in Rs 27,989 crore in equities after pouring a net amount of Rs 66,815 crore in the entire previous calendar year 2015 (CY15). The benchmark index is up two per cent so far in CY16 against five per cent decline recorded in CY15.
Going ahead, analysts at Morgan Stanley believe there is a case for a big asset allocation shift for domestic investors to equities -- and the last time an equivalent valuation opportunity in favour of equities arose was in June 2013.
“Superior growth prospects, a shift in funding mix to FDI, better terms of trade, reforms, and a domestic liquidity super-cycle for stocks are driving India’s P/E premium. India’s overweight position in emerging markets (EM) portfolios has eased to a 36-month low,” points out Ridham Desai, head of India research and India equity strategist at Morgan Stanley in a co-authored report with Sheela Rathi.
“We’re putting cash back to work, which we raised in September, and are overweight consumer discretionary, financials, technology and underweight staples, energy, industrials, telecoms and utilities,” they add.
On the other hand, Abhay Laijawala, managing director and head of research at Deutsche Equities India, cautions that the flow environment will be highly challenging going ahead with many uncertainties. These include the outcome of the Italian referendum on December 4; the outcome of the US Federal Reserve meeting; and the pace of outflows from China and the associated depreciation of the Chinese currency.
“In case the pressure on outflows from China increases as a consequence of US Fed policy and President-elect Donald Trump’s pro-growth policies, which would result in sharp dollar strengthening, we may see acceleration in the selling by FIIs, who have been net sellers throughout November. We cut our December 2016 Sensex target to 25,000 from 27,000 earlier,” Laijawala says.