March sell-off by DIIs is poised to be the highest in three years

The March sell-off by domestic institutional investors (DIIs), which include mutual funds (MFs), is poised to be the highest in three years. So far this month, DIIs have sold shares worth Rs 12,825 crore, the highest since April 2016. MFs alone have pulled out Rs 6,913 crore. This is their first monthly sell-off after 31 months.

Meanwhile, this is a fifth straight month of selling by insurers and other domestic institutions. Since November, they have pulled out over Rs 20,000 crore from equities.  

While the sustained selling by other DIIs could be due to profit-taking, experts say the high MF selling tally might be because of redemptions in arbitrage schemes.

“Arbitrage schemes typically tend to see redemptions in March as corporate and institutional investors prefer to take out their treasury-related investments before the end of the financial year. Redemptions in these schemes could have forced fund managers to unwind positions in the cash markets,” said a fund manager.

However, experts add that selling by MFs is unlikely to continue as flows into equity schemes although have moderated but remained positive. In February, equity schemes saw inflows of Rs 5,122 crore, the lowest in 25 months. Meanwhile, the monthly contribution through systematic investment plans (SIPs) has stayed around Rs 8,000-crore levels.

According to experts, the bulk of the money coming through the SIPs-route is mandated for investing in equity schemes.

The selling by DIIs has come at a time when foreign institutional investors (FIIs) have bought Rs 25,000 crore worth of shares in March. This is the highest inflow tally by FIIs since March 2017.

The benchmark Sensex has gained 6.4 per cent this month amid strong buying by FIIs. Experts say some MFs might have booked profits in stocks that have rallied sharply on the back of FII buying.

During the month, the BSE Midcap Index has gained 5.3 per cent, while the BSE Small Cap Index is up 8 per cent. ­­Market participants say the expectation of a favourable election outcome is likely to keep investor sentiment positive.

“After being cautious, investors seem to be getting confident about the incumbent government returning to power. The rally in the markets since the start of March 2019 is indicating the same,” ICICI Securities said in a recent note.