As FPIs bail out, DIIs riding on retail fuel fund a bailout

Mumbai: Domestic institutional investors (DIIs) led by mutual funds and insurers have pumped 16 2.16 lakh crore into Indian equities so far in 2022, helping cushion the impact of the ₹ 2 lakh crore plus outflow from foreign funds on the stock market. Unabated flows from retail investors into equity mutual fund schemes have been the main driver of domestic money into the stock market.

From October 2021, when the outflows from FPIs started, DIIs have pumped in ₹ 2.8 lakh crore into stocks here. FPIs have sold Indian stocks worth ₹ 2.4 lakh crore since October 2021. That’s when benchmarks Sensex and Nifty last hit record highs.

“Without DII support, the market (Nifty) would have been in four digits,” said Nilesh Shah, MD, Asset Management Company. The Nifty closed at 15,413 on Wednesday. “There have been $ 36 billion outflows from FPIs so far this year and their holdings are down from 21.5% of the NSE 200 market-cap to below 19%.”
The Sensex and Nifty are down about 15-16% from their all-time highs in October. The mid-cap index has fallen 20% and the small-cap indices have dropped 22%.

That hasn’t stopped retail investors from pumping money into the market. Domestic equity schemes have received flows to the tune of ₹ 1.39 lakh crore since the market decline in October started. The monthly flows through Systematic Investment Plans (SIPs) were above ₹ 10,000 crore for the ninth month in a row up to May.

Fund managers said the retail flows have been strong so far because of higher past returns till October and lower returns from other asset classes such as fixed income and real estate. The increase in interest rates and pressure on equity returns may, however, slow down flows, they said.

“In the last eight-nine months, FPIs have been pulling out money and DIIs have compensated equally. Even now there is scepticism but redemptions are not happening,” said Vinit Sambre, head of equities at DSP Investment Managers. “What we are watching closely is the Nifty one-year return which is over 2% down. If bond yields cross 8-8.5% it would take some interest away from equities.”

A decline in retail investor appetite is already visible. The net SIP account addition in May was at 940,000, the lowest in 12 months

Shah said the ‘not-so-matured set of investors’, who look at past performance before investing, will get perturbed by the last one-year return. “They are a small percentage of total investors and they could stop their SIPs. Smart investors’ money will not reduce, they will do SIP top-ups,” said Shah.

He added that there would be a slowdown in new customer addition on the SIP side but the amount of money coming into SIPs is likely to remain positive.

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