DIIs inflows hit six-month high in February amid decline in Sensex

While concerned investors around the world are rejecting risky assets such as equities for fear of a rapid spread of the coronavirus that is dragging the global economy into recession, domestic institutional investors (DIIs) remain optimistic about equities.

In February, the DII ₹16 reached 933.03 crore, the highest monthly throughput since August 2019, although India’s major indices lost almost 10% of their January record. In February, the BSE Sensex and NSE Nifty indices fell by 6%, while both indices lost 7-8% year-on-year.

DIIs are net buyers of shares worth ₹19 182.58 growing this year. As a net seller, DII became positive in November and December with an inflow of ₹2 249.55 Crore in January.

Appetite of the investor

According to Deepak Jasani, head of retail research at HDFC Securities, most of the DII inflow is driven by insurance companies. Under the CIS, the insurance companies are the main buyers this month. Most of these bulk purchases are related to the bottom fishing strategy. Maybe they saw the lower level of the market as an opportunity to buy. But it can also mean that this trend can be reversed as markets get higher, he said. Bottom fishing is an investment strategy whereby investors buy shares or securities that are considered undervalued.

Reliable funds from retail clients flowing into systematic investment plans (SIPs) in January may indicate strong domestic liquidity parked in Indian equities. SIP’s contribution reached a record high in January at ₹8 532 Crore, according to the latest data from the Mutual Fund Association of India (Amfi). The SIP allows investors to invest fixed amounts in investment funds at certain intervals.

Meanwhile, the confidence of foreign institutional investors (FDI) in Indian equities seems to have been shaken. During the last four trading sessions, FI sold $1.36 billion worth of Indian shares. However, IPI is still a net buyer of Indian shares worth $777.07 million in February and $2.24 billion in 2020. In dollar terms, Sensex and Nifty lost 8-9%, while the MSCI in emerging and global markets fell around 7%.

At this stage, the growth of corporate profits is crucial to justify the high demand forecasts in Indian equity markets in the context of slower growth. At its current level, Sensex has been trading for 21 years at 17.46 times its return. It is 12.08 times more expensive than trading in the MSCI Emerging Markets Index and 15.7 times more than the expected return for the 21st century. financial year, compared to trading in the MSCI World Index.

Sreejith Balasubramanian, Fund Management Economist at IDFC AMC, said the coronavirus may affect India’s growth, depending on the duration and intensity of its global spread and containment measures. India’s direct trade relations with China and Hong Kong account for 9% of total exports and 17% of total imports. Supply disruption and weaker external demand would exacerbate domestic problems, and sustained risk capital outflows could put emerging market currencies under pressure, despite the accumulation of foreign exchange reserves by the Reserve Bank of India. However, according to Balasubramyan, expectations of a loosening of global monetary policy have already started to rise in the context of the uncertainty that is still looming on the horizon.

Among Asian currencies, the Indian rupee lost 1.1%, the Thai baht – 5.05%, the Indonesian rupee fell 3.16%, while South Korea lost 4.8% against the dollar in 2020.