Shopping spree: Domestic investors step up as foreign counterparts exit

Amid a massive selloff by foreign portfolio investors (FPIs), domestic institutional investors (DIIs) — comprising mutual funds (MFs) and insurance companies —have stepped up their purchases this month.

In a show of strength, DIIs have made their three largest single-day purchases in October, injecting liquidity into the market amidst FPIs’ exodus. On Monday, they pumped a record Rs 13,245 crore into the market as the Sensex and Nifty declined for the sixth consecutive day.

 

This buying spree is not an isolated incident. Historically, DIIs, particularly MFs, have seized opportunities to buy during sharp selloffs by overseas funds. The sustained inflows through systematic investment plans (SIPs) and the Employees’ Provident Fund Organisation (EPFO) provide MFs with the necessary firepower to invest during market downturns. This domestic support has helped cushion the Indian market’s downside and kept volatility in check. Between October 2021 and June 2022, FPIs withdrew a staggering Rs 2.56 trillion ($30 billion) from domestic equities, leading to an 18 per cent market decline. However, strong DII buying helped the market recoup all the losses in a matter of months.   

An intense tug-of-war between FPIs and DIIs has resulted in the Sensex retreating 5 per cent from its peak on September 26. While domestic investors’ steadfast buying has cushioned the fall, the sheer scale of FPI holdings -- exceeding $1 trillion in Indian assets -- ensures their actions also remain a market-moving force.