DIIs turn net buyers in Q4

Domestic institutional investors (DIIs), an investor group made of Indian mutual funds (MFs), banks and insurance companies, have turned net buyers to the tune of Rs 11,076 crore in the fourth quarter after being sellers in the previous two quarters as lower stock prices and seasonal inflows. The Bombay Stock Exchange releases the data on their daily secondary market activities.

According to insurance industry sources, 40 per cent of yearly flows come into the industry between January and March, which is when investors buy tax-saving products like insurance and equity linked savings schemes (ELSS) of MFs. Aneesh Srivastava, chief investment officer at IDBI Federal Life Insurance, reckoned: “Insurance sales generally take place during the last quarter of the financial year and a large part of that money flows into the equity market.”

While insurance investment data in stock markets is not yet available for the first quarter, MFs bought stocks worth Rs 2,047 crore according to the Securities and Exchange Board of India (Sebi) data. Sanjay Sinha, CEO, L&T Mutual Fund, said MFs have seen net additions to their equity portfolio month on month since December because market valuations were attractive. “Last year, Sebi removed the entry load on MF schemes which had taken a toll on inflows and only now the situation is getting stabilised,” added the senior market source. The MF industry had seen net redemptions for the most part of 2010.

When the Sensex closed at its all-time high in November, MFs had booked profits and they were sitting on cash, RK Gupta, MD, Taurus Asset Management said. As and when the markets started correcting, they started re-investing in the equity markets.

Valuations became reasonable after the fall as markets were trading around 14.5 times one-year forward P/E (price to earnings) multiple in February which was the average for the last 10 years.

In the past four years, DIIs have been net buyers in equities in the fourth quarter. While DIIs were buying equities in the March 2011 quarter, FIIs exited shares worth Rs 7,931 crore in the same period in the secondary market. Overseas investors have turned net buyers along with the domestic investors since March 22 and have bought shares worth Rs 5,596 crore, which contributed to the 9 per cent rally in the same period. In FY11, DIIs withdrew Rs 18,708 crore from the market while FIIs invested Rs 48,838 crore in secondary markets.

Insurance flows into the market are likely to slump over the short-term, another seasonal factor. Insurance industry sources said, “Flows from the insurance industry will slow down in the June quarter as they have already invested in equities and it is fair to assume that they would not have any significant hidden or unsaturated demand for the next quarter.” Fund managers said fund flows from MFs may continue depending on the retail inflows and market levels.