Mutual funds, DIIs turn net buyers as market falls; FPIs net sellers

Foreign investors pull out Rs 12,000 crore after pumping in Rs 60,000 crore in July, August

Taking advantage of the weakness in the equity market, mutual funds and domestic institutional investors (DIIs) have stepped up their buying in September as foreign portfolio investors (FPIs) turned net sellers. Up to September 29, mutual funds had pumped in over Rs 15,600 crore into domestic stocks against Rs 1,100 crore net outflow in August.

DIIs also displayed a change in stance as they invested a net Rs 11,000 crore into the equity market till September 29. This compares to the Rs 7,000-crore net redemptions in the previous month. FPIs had turned net buyers in July after pumping out money from India for nine-straight months and this (buying) lasted only for a couple of months. This month (till September 29), they have taken out a net Rs 12,000 crore from the equity market.

Overall, the equity markets received a net inflow of Rs 1.7 trillion during the first six months of FY23 despite FPIs pulling out Rs 58,700 crore.

Analysts said FPIs went back to being net sellers due to ‘relentless’ rate hikes and weakness in the Indian currency.

“FPIs have turned sellers due to risk-off sentiment that’s prevalent globally post the relentless rise in interest rates and chances of global recession,” said Deepak Jasani, head of retail research, HDFC Securities. “The Fed has been increasing rates. In such a scenario, money has moved away from equities to bonds. Appreciation in the dollar’s value is also ideally followed by outflow from emerging markets,” said Jyotivardhan Jaipuria, founder, Valentis Advisors.

Experts believe that selling by FPIs should not be a problem. “Domestic institutional and retail investor buying should offset the effect of FPI selling unless there is a steep fall. If the markets fall by 10-15 per cent, then retail investors may panic. Till then, monthly investments in mutual funds should be able to support the market,” said UR Bhat, co-founder, Alphaniti Fintech.

However, it may not be easy for mutual funds to keep pushing money into equities unless net inflows improve. In August, the net inflows in equity schemes came at a 10-month low of Rs 6,000 crore. In July, the net inflows was higher at Rs 9,000 crore but was down 40 per cent month-on-month from Rs 15,500 crore in June.