Domestic money managers on a buying spree

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At the time when foreign institutional investors (FII) shrugged off domestic equities in July, domestic money managers continue to lap up shares for the fifth straight month. Data available with Ace Equity showed that domestic institutional investors (DIIs) have bought shares worth Rs 13,390 crore on a month-to-date basis till July 28, registering their highest inflows since March 2020.

Earlier, they had poured more than Rs 55,000 crore in March 2020 when the stock market witnessed a steep correction due to the nationwide lockdown. There is a possibility that mutual funds have been on a buying spree due to the rise in systematic investment plans. SIP account registrations hit a record high of around 2.13 million last month. Data from the Association of Mutual Funds in India showed that the previous high was 1.67 million accounts in March. The speed of SIP additions has nearly doubled from the last two years’ average of 1.12 million accounts.

On the other hand, overseas money managers offloaded shares worth over Rs 8,500 crore this month as they continued to adopt a cautious stance in view of various domestic and global factors. However, their net inflow stood at Rs 17,215 crore last month.

There are chances that rising valuation, increase in oil prices and firmness in the US dollar would have made foreign investors wary of the near-term risks, which would have prompted them to stay on the sideline in July. It is difficult to guess which FIIs are selling at this point in time. However, a few market experts believe that select hedge funds are booking profit after the sharp run-up in the Indian equity market. The benchmark BSE Sensex has gained 10% on a year-to-date basis and nearly 97% since March 2020 lows.

Overall, the Indian equity market continues to look attractive from an investment point of view considering the robust liquidity and hopes of sharp earnings recovery going ahead. As the macro environment improves and the domestic economy starts treading on the recovery path, FPI flows can be expected to rebound and the benchmark indices BSE Sensex and NSE Nifty may scale new highs. The retail investor who has shown a remarkable appetite for MFs in the past several months should continue to pump money after due consultation with their investment advisors.