Furthermore, they pumped in nearly Rs 7,000 crore in April to help the 30-share index record a fresh intraday high of 30,167.09 on Wednesday.
It was not regular foreign institutional investors (FIIs)—considered to be the backbone of Indian markets—but domestic institutional investors (DIIs) who led the rally on D-Street from March 2015 when Sensex recorded its previous all-time high levels 30,024.74.
DIIs poured in over Rs 1 lakh crore in Indian equity markets from March 2015 to March 2017 and nearly Rs 7,000 crore in April to help Sensex record a fresh intraday high of 30,167.09 on Wednesday.
Foreign institutional investors (FIIs) on the other hand poured a little over Rs 40,000 crore from March 2015 to March 2017. They remain net sellers to the tune of over Rs 5,000 crore for the month of April as per provisional data.
“DII contribution becoming more substantial and steady as against being sporadic and meager. While this brings in solidity and support to the equity market, FIIs’ contribution, as and when they come, could give muscle for the big leaps,” Anand James, Chief Market Strategist at Geojit Financial Services told moneycontrol.
Abundance liquidity has been one of the major factors driving a rally in Indian equity markets, especially from domestic investors. On the domestic front, liquidity is high, both with the funds as well as the insurance companies.
The lion’s share of the money is coming from systematic investment plans (SIPs) via mutual funds into Indian equity markets, a trend which most experts think will continue in future as well.
“For instance, the quantum of SIP coming into the funds is Rs 4,000 crore and all of this is being invested in the markets. The FIIs too have been focusing on India given its attractive fundamentals and expectations,” Prasanth Prabhakaran, Senior President & CEO at YES Securities (India) Ltd told moneycontrol.
“There are months wherein FIIs have pulled out funds on account of global events but DII flows have supported the markets. We expect this trend to continue and the flows to remain strong from a long-term perspective,” he said.
Healthy SIP book is strongly supporting fresh inflows in equity oriented mutual funds. Such MFs have witnessed inflows of over Rs. 2 lakh crore since May 2014.
“During May 2014-Feb 2017, equity MFs witnessed average monthly inflow of over Rs 6,000 crore, out of which Rs 4,000 crore came from SIPs,” Tushar Pendharkar, Head of Research, Right Horizons Investment Advisory Services told moneycontrol.
“We believe that monthly SIP book in equity funds is expected to remain in the range of Rs 7,000-10,000 crore in coming years and would continue to provide huge funding to MFs to counter FIIs selling pressure,” he said.
FPIs flows are necessary
The capital poured in by foreign institutional investors (FPIs) into Indian equity markets is often called ‘hot money’ because of its unpredictability. But, they have been among the strongest to lead the rally on D-Street.
FPIs’ cumulative net investment in the Indian equity market, since being allowed over two decades ago in November 1992, has now reached Rs 8.65 lakh crore, said a report.
For the Indian market to hit fresh record highs, flows from FPIs on a sustained basis is required. Else, the rally will fizzle out sooner or later.
“Markets would still draw a lot of strength from FIIs, even as the recent trend is backed by DIIs. To sustain a broad rally for a long period, FIIs would need to invest in India,” Prakarsh Gagdani, CEO, 5Paisa.com (a subsidiary of IIFL) told moneycontrol.
“I believe for the next few years India remains the best bet among emerging economies and with a strong central government, the economy would only go from strength to strength. Therefore FIIs would complement DIIs in the medium term,” he said.