Selling by DIIs at 9-year high

Insurance firms, mutual funds pressed the exit button on Indian stocks in 2013

The value of stocks sold by domestic institutional investors (DIIs) in 2013 has been higher than in any year since at least 2004.

According to exchange data, these investors have net-sold Rs 73,234 crore worth of stocks till December. This could well be the most ever in a year but exchange archives do not have data for years before 2004. The exodus this year has beaten the Rs 56,923 crore of sales seen in 2012, another record year for DII exits.

DII outflows have come even as foreign institutional investors (FIIs) have bought more than Rs 1 lakh crore worth of Indian stocks during 2013 — the third-highest FII inflows in a year.

According to Bharti AXA Life Insurance Chief Investment Officer Sandeep Nanda, investors rushing to redeem in a rising market formed the bulk of selling by domestic institutions, primarily comprised of insurance companies and mutual funds.

“There has been redemption pressure due to a relative outperformance of other asset classes like real estate and gold. The outlook for these competing asset classes, as well as inflation expectations, would determine the outlook for the future,” he said.

Industry experts suggested mutual fund investors, too, had been looking to exit on every rise in the market.

Equity mutual funds saw net redemptions of Rs 11,283 crore in 2013, showed a CRISIL research note, based on data from the Association of Mutual Funds in India. The mutual fund industry had assets of Rs 1.75 lakh crore as at the end of November.

Lalit Nambiar, fund manager at UTI Asset Management Company, said the sentiment remained muted and key political and global liquidity triggers might determine the nature of flows next year.

“Investors will likely look at elections and the extent of tapering in the new year for cues. Any inflow will be dependent on how these factors play out,” he said.

The US Federal Reserve has already curtailed its $85-billion monthly liquidity infusion into the markets by $10 billion.

Swapnil Pawar, chief investment officer at Karvy Capital, which runs a hedge fund managing money for big-ticket clients, said that incremental inflows into DIIs were not likely to beat outflows for now.

“DIIs are vehicles for domestic investors and they have to exit as and when these investors wish to redeem their investments. A lot of these investors have seen their money coming back to break-even levels after many years and they would rather exit than wait,” he said.

A large number of investors who had put their money in the markets during the 2007 and early 2008 peak chose to exit on highs — the Sensex had reached its life-time high of 21,326.4 on December 9. The mutual fund industry had seen its highest inflows during the 2007-08 period.

“The pressure from these long-standing investors is likely to remain for some time. There have been some inflows in recent times, but these have been shadowed by outflows with investors exiting,” he added.