FIIs buying spree in 2017 powers equities to near-lifetime highs; DIIs too get in on act

By: and | Updated: March 9, 2017 5:41 AM

With foreign portfolio investors (FPI) buying close to $2 billion worth of equities in 2017 so far, the markets are hovering close to their lifetime highs, report Yoosef KP and Chirag Madia in Mumbai.

In February, FPIs bought stocks worth .6 billion while domestic institutions bought shares worth 8 million.

With foreign portfolio investors (FPI) buying close to $2 billion worth of equities in 2017 so far, the markets are hovering close to their lifetime highs, report Yoosef KP and Chirag Madia in Mumbai. In February, FPIs bought stocks worth $1.6 billion while domestic institutions bought shares worth $138 million. Domestic institutions have been big buyers in recent months. Between October and now, insurance companies, mutual funds and financial institutions have purchased shares worth $5.7 billion. That has helped offset the sales by FPIs of $2.6 billion during this time.

Inflows into mutual fund equity schemes have been plentiful; between April 2016 and February 2017, equity mutual funds, including ELSS schemes, saw inflows of R62,151 crore. In December alone, inflows were around R10,000 crore while in January they were close to R5,000 crore. Between April 2016 and February 2017, life insurance companies saw first-year premium collections of R1,40,000 crore, a growth of 31% year-on-year.

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While the markets were sluggish in October and November — especially post demonetisation — the Nifty has rallied 13% since December. That has pushed the market into expensive territory with the benchmark now trading at a price-earnings multiple of 17.2 times one-year estimated forward earnings. That’s a shade more than the multiple of 16.8 times that it was trading at the last time it ruled at these levels two years ago — an indication of earning expectations still under a downward pressure. Analysts at Jefferies, hence, are bearish on the index and expect it to correct about 10% over the next 12 months. “DII flows will increasingly displace FIIs in setting market direction, they have seeds to create a bubble currently and they will not make the market higher valued in the long-run. For us, fundamentals matter and they are weak near term,” they observed.

Jefferies’ analysts feel the recent surge in DII inflows is a function of demonetisation as cash savings have found their way into the equity market. “We feel that a portion of this money — from owners that were used to returns in high teens and not averse to taking risks — has found its way into equities in the last two months. Soaring markets have only resulted in a virtuous cycle with many new investors likely falling prey to the lure of fast returns while underestimating risks,” they added.

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