DIIs net buy $1.9b in 2011, match FII outflow but fail to pep up mkt

After sitting on the fence for most part of 2010, equities seem to have caught the fancy of the domestic institutional investors (DIIs) thanks to the sharp correction, attractive valuations and high cash levels.

According to the data colleted by the NSE and BSE, domestic institutions have net bought stock worth about $1.9 billion (Rs 8,557 crore) this year, almost similar to the net selling done by their foreign counterparts. DIIs include banks, domestic financial institutions, mutual funds and new pension systems.

Despite the magnitude of DII buying been equal to that of FII selling, they have not been able to support the Indian markets, which are down more than 10% this year.

?Domestic institutions buying are not able to counter FII selling. Foreign investors invest more in index stocks, whereas domestic institutions normally tend to do research and invest in stocks that offer more value,? said Rakesh Arora, managing director and head-research-India, Macquarie Capital Securities.

Most domestic investors had missed out on the rally in 2010, as they net sold stocks worth almost $5 billion. The market that year gained almost 18% with foreign investors pouring in $29 billion, the highest-ever seen in the history of Indian capital markets. Also, after sustained selling, inflows are back into equity schemes for the last two months for the mutual fund industry, which in turn is triggering investments into equities.

In 2011 so far, due to the worsening macro-economic situation in India and better prospects elsewhere, foreign investors seem to have hit the sell button, selling stocks worth almost $2 billion. This triggered a near collapse in Indian equities, with many stocks correcting more than 50%.

After the correction, the Sensex is trading at 14 times its one-year forward consensus-based earnings, below its long term average of 15.6 times.

With the valuations of Indian markets falling below their long-term average, DIIs have started to put their cash pile to work. ?Domestic institutions were sitting on cash for some time. That money has been developed as valuations had become attractive,? said Girish Nadkarni, executive director and head equity capital markets, Avendus Capital.

?Strong buying from insurance companies has emerged whenever markets have corrected,? said Gopal Agrawal, deputy CIO and head-equity, Mirae Asset.

He expects domestic inflows will continue to be strong due to strong flows in the insurances sector and huge operational cash at mutual funds.