Buying by domestic institutional investors (DIIs) – comprising mutual funds, banks, insurers and financial institutions – in the cash market is set to surpass ₹5 lakh crore this year, a record.
As of Tuesday, DIIs had pumped in ₹4.96 lakh crore, over 80 per cent of which has been contributed by mutual funds. This is about 1.8x the previous high seen in 2022.
While October saw purchases of over ₹1 lakh crore, the months of March, May and August saw DIIs buying in excess of ₹50,000 crore. The lowest buying this year was in February amounting to ₹25,379 crore.
Key driver
A key driver of the record buying is the increasing retail participation in equity markets through mutual funds. Monthly flows through systematic investment plans totalled ₹25,323 crore in October, an all-time high, marking a 54.7 per cent year-on-year growth.
Equity schemes have seen 44 straight months of inflows. Financialisation of savings, increasing acceptance of equity as an asset class, and favourable tax structure compared to other asset classes have supported MF flows.
The sustained flows may have created a problem of plenty for the country’s fund managers. While this may be a short-term problem for a few schemes that manage sizeable AUM, the recent correction and some good quality IPOs has helped deploy money meaningfully, said DP Singh, joint CEO at SBI Mutual Fund.
Countering FPIs
Sustained DII buying has helped offset the selling by FPIs, which stood at ₹2.83 lakh crore in the year to date.
Significant FPI outflows have historically led to sharp corrections in the Indian markets. In most instances wherein the Nifty50 has declined more than 5 per cent in a month, FPI flows have been negative.
Despite the highest-ever monthly FPI outflows in October totalling over ₹1.1 lakh crore, Indian equities were fairly resilient, falling just 6 per cent, as DIIs pumped in ₹1.07 lakh crore. FPIs also a sizeable sum totalling sold ₹42,214 crore in May as the country went for elections.
The last time Indian equities saw such heavy and consistent FPI outflows was during the first half of 2022, when FPIs sold an average of $4.7 billion every month.
“While markets crashed by a huge 23 per cent in March 2020, October’s decline was just a quarter of that, despite FPI outflows being 34 per cent higher. This sharp contrast underscores the increasing dominance and relevance of domestic investors in the market,” NSE’s Chief Economist Tirthankar Patnaik said in a recent note.
The share of DIIs in companies listed on NSE rose to an all-time high of 16.46 per cent for the quarter ended September with a net inflow of ₹1.03 lakh crore during the quarter, according to primeinfobase.com. The share of domestic mutual funds at the end of the quarter rose to a fresh high of 9.45 per cent, powered by flows of ₹89,038 crore. The FPI to DII ownership ratio decreased to an all-time low of 1.07 in Q2 from 1.99 as on March 31, 2015.
