Domestic institutions such as insurance companies and mutual funds are playing the role of market saviours at a time when foreign institutional investors are selling heavily.

Secondary market operations data (for the Bombay Stock Exchange and the National Stock Exchange combined) show net sales by FIIs since July 26, when the markets started falling, stood at Rs 7,733.82 crore (Rs 77.34 billion).

Domestic institutions, on the other hand, bought shares worth Rs 4,542.95 crore (Rs 45.43 billion), which means they absorbed 60 per cent of FII sales.

In the last three months, domestic institutions have been placing big orders in the secondary market while FIIs continued to sell to cover for losses as a result of exposures in the US sub-prime mortgage market. It was only in July that FIIs bought around Rs 10,000 crore (Rs 100 billion) worth of stocks before starting to offload from July 27.

In June this year, domestic institutional purchases were the highest this financial year at Rs 4,560 crore (Rs 45.6 billion). But they neared that figure in just 13 trading sessions since July 26.

"In recent times, domestic institutions have been absorbing FII sales," said Deven Choksey, MD, KRC Shares and Securities.

The head for institutional selling with a large domestic brokerage house reckons that Life Insurance Corporation alone must have bought shares worth Rs 2,000 crore (Rs 20 billion) in the last three weeks and domestic mutual funds, over Rs 1,000 crore (Rs 10 billion).

The rest was bought by other insurance companies and banks. Market sources said insurance companies were making big purchases for unit linked insurance policy equity schemes as well.

"We are buying from the markets but cannot divulge how much we bought," said an LIC [Get Quote] executive. A dealer with a fund house said domestic companies were buying fundamentally good shares at reasonable prices in a falling market.

Choksey believes "the short-term hot money" will go out of the market. The participatory notes crowd exit and that will cause the Indian market to suffer.

"We enjoyed the ride for the past four years, now we will feel a bit of pain. In the medium term, however, India will benefit and more stable money will come in."