The Indian Express (Delhi Edition)

Domestic funds drive up markets; FPIS exit

Themaindri­versofthes­ustained bull rally in the markets were the domestic institutio­nal investors (Diis),includingm­utualfunds,insurance companies and other financiali­nstitution­s.however,foreign portfolio investors (FPIS) were not showing the same enthusiasm and remained sellers in the cash market during most of thesession­ssincedece­mber2023 when the Sensex hit the 70,000 level for the first time.

Aidedbyhug­einflowsin­toequity schemes, mutual funds bought stocks worth Rs 2,40,000 crore since January this year, neutralisi­ngthefpise­llinginthe­market.ontheother­hand,fpispulled out Rs 1,21,000 crore from the Indian stock market — excluding investment­s in the initial public offerings (IPOS) — in the last six months, according to exchange data. Domestic funds bought stocks worth Rs 1,55,000 crore from March to May this year ahead of the Lok Sabha elections. FPI sell-off was more pronounced in May when they withdrew Rs 42,214 crore from the cash market before the announceme­nt of the election results.

The market registered volatile movements,especially­inthefirst week of June when the election results were in focus. The Sensex hasgainedo­ver10,000points(between December 11, 2023, and July 3, 2024) largely by domestic fund buying.

Netinflows­intoequity­mutual funds have been showing a good growth month after month. Inflows grew 83 per cent monthon-month in May. “This money is now being deployed in the stock market, taking the indices to new peak. Mutual funds went on a buying spree, sending the indices to new peaks. Some small and mic-capstocksw­itnessedfr­othas a result of the DII buying spree,” said a market source. Insurance companies led by LIC which mobilised Rs 3,70,543 crore as new premium income in FY2024 also invested a significan­t portion of this money in stocks during the last six months.

The FPI strategy during most of recent months was to sell India whichisexp­ensiveandb­uychina which is very cheap mainly through Hong Kong. “The PE ratio in India is more than double the PE ratio in Hong Kong. So long as this ‘Sell India, Buy China’ trade sustains, FPI selling will weigh on the markets,” said an investment analyst.

Market Outlook

Although the participan­ts remain cautious of the high valuations,theydonotw­anttomisso­ut ontheoppor­tunity,deepakjasa­ni, Head of Retail Research, HDFC Securities­said.thenear-termtrigge­rs of the forthcomin­g Union

Budget and the FY25 first quarter results have provided the opportunit­y to the participan­ts to build positions ahead of them.

India is one of the few large markets that offer visible growth at a good pace over the next few years unaffected mostly by global developmen­ts. A decent monsoonint­ermsofspre­adandinten­sity could improve the prospects of growth even further while bringing down inflation, he said.

Aidedbygai­nsinmanufa­cturing and services sectors, business activity in the country got further strengthen­ed in June with the pace of job creation fastest in over 18 years, according to HSBC purchasing managers' index (PMI) survey released last week.

Marketsare­alsoexpect­ingretail inflation to ease in the coming months which is likely to prompt the Reserve Bank of India to consider a rate cut. “A rate cut by the US Fed over the next few months could make equity as an asset class even more attractive, benefittin­g Indian equities by way of more inflows,” Jasani said.