In contrast to outflows by foreign portfolio investors (FPIs), unabated buying by domestic institutional investors (DIIs) has fuelled the slipping Indian market in the recent months. Since the beginning of the current calendar year, participation of DIIs in equities has been much more than FPIs.

DIIs have invested Rs 37,515.77 crore in Indian equity markets as on 11 May, data from BSE showed. On the other hand, net investments by FPIs stands at Rs 4,430.44 crore, suggests NSDL data. Analysts say foreign capital outflows in India is due to outflows in their respective nations, higher interest rates in several global markets and a weakening rupee. The investment by DIIs includes mutual fund houses, banks, financial institution and Insurance companies.

“In India, economists are expecting the current account deficit to expand, mainly led by rising oil prices and the fiscal deficit to be under pressure, because of lower tax revenues. This explains the nervousness among FPIs,” explains Sandeep Chordia, executive VP at Kotak Securities. In February alone, DIIs bought stocks worth Rs 17,226.4 crore when broader indices fell by around 5% on concerns over long-term capital gains tax for equity transactions.

Anita Gandhi, whole-time director at Arihant Capital Markets, argues that valuations of Indian markets are still expensive. “In the US, 10-year bond yields are trading at near 3% and that makes it attractive for FPIs considering it as risk free. Also, President Trump’s taxation relief has improved earnings of US companies, making their equities also attractive.”

However she feels that, DIIs might continue investing in the months to come as inflow of systematic investment plan (SIP) and pension money is still strong. Even in the first eight trading days in May, DIIs have bought Rs 5,360.45 crore while FPIs have sold stocks worth Rs 4,030.2 crore in Indian equity markets.

FPIs exits from several emerging markets when the currency becomes weaker. When the rupee is at one and a half year high, it gives a lot of discomfort to FPIs, says A K Prabhakar, Head- Research at IDBI Capital Markets and Securities. He also elaborated that, if rupee erodes by 5%, FPIs investment could also go down by 5%. In the current calendar year, FPIs have pulled out money even from countries like Indonesia, Philippines, S Korea, Taiwan and Thailand.