As DIIs play catch up, inflows surge to 7-year high

By: | Published: August 4, 2015 12:13 AM

Domestic funds pump in over Rs 27,600 cr - highest since 2008

Seeing long-term value in equities and catching-up with the under-allocation, domestic institutional investors (DIIs) continued to pour money into equity markets for sixth straight month in July. More importantly, DII inflows in the first seven months of CY15 are at a seven-year high.

According to Bloomberg data, DIIs invested roughly Rs 750 crore into equities last month, taking the year-to-date tally to Rs 27,623.24 crore – the highest in eight years. During the January-July 2008, DIIs had pumped-in Rs 43,921.78 crore, data showed.

Market experts said that domestic fund flows have been driven by the strong performance of the mutual fund industry and change in investors’ perception towards real estate and gold as asset classes.

“Lot of investors are revisiting their perception about investments in safe assets like real estate and gold. They have attained ‘financial nirvana’ and have started to invest in assets like equities. In addition, pension funds will arrive in equity markets and this will ensure that DII flows will consolidate further in the coming days,” said Nilesh Shah, MD, Kotak Mahindra AMC.

Gr4

Experts said Indian markets will begin to see Employee Provident Fund Organisation (EPFO) money flowing into equities for the first time this month, after the government granted permission for investment of pension funds in the equity.

“Pension funds have not invested a single rupee in equity market till now. Now they have been allowed to investment between 5-15% which translates to R2 lakh crore. Globally pension funds are the biggest owners of equity markets.

Both, our markets as well as pensioners will benefit from this move,” Shah added.

During the first seven months of 2014, DIIs sold equities (in the cash segment) worth Rs 33,798.33 crore. In 2012 and 2013, DIIs featured as net sellers to the tune of Rs 24,684.742 crore and Rs 42,099.41 crore, respectively.

The month-wise data suggests that DIIs have been net buyers in six out of seven months in the year so far. As per  Association of Mutual Funds in India (Amfi) data, India’s equity mutual funds have seen inflows for 14 straight months in June, with inflows of over Rs 32,200 crore in the last three months alone.

Milind Barve, MD, HDFC AMC opined that government policy actions and strong MF performance has restored investors’ faith into equities. “Until May 2014, the industry had witnessed constant outflow of equity funds. Indian investors had under allocated for equity markets. Now they are catching up with the under allocation. People are now clearly taking mutual fund route to invest supported by positive government policy action on number of economic issues and investment performance of mutual fund industry,” Barve said.

Experts said inflows by DIIs will also help balance strong outflows by their foreign counterpart in case of a knee-jerk reaction to US Federal Reserve’s stance on its monetary policy. With interest rate hike around the corner, DIIs are expected to rescue Indian markets from collapsing.

“DII inflows have consistently increased in the last few months especially in the MF space. I expect DIIs to prevent any abrupt fall in the economy due to likely FII outflows post US Federal Reserve hikes the interest rates,” said Anand Shanbhag, head – research, Tata Securities.

Foreign portfolio investors’ (FPIs) flows have been volatile in the last few months because of the Greece crisis and the rout in Chinese markets. Last week, FPIs had pulled out more than $300 million from Indian equity markets. In June, FPIs pulled out $960 million – the worst monthly flows in two years.

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