Domestic institutional investors (DIIs) – comprising mutual funds, banks, insurers and financial institutions – bought shares worth ₹2.36-lakh crore in the cash market in the first half of the year. This is 1.7x of the purchases made last year and a record for the first half of any year.

Over 83 per cent of the purchases were contributed by mutual funds. The highest purchase was made in March (₹56,312 crore) and the lowest in February (₹25,379 crore).

In contrast, foreign portfolio investors sold shares worth ₹1.24-lakh crore during the same period. FPIs sold the most in May (₹42,214 crore) as the country went for elections.

Raining flows

Equity schemes have seen 39 straight months of flows, with inflows of ₹1.24-lakh crore in the five months to May.

Systematic investment plans have been the preferred investment mode. Average monthly flows through SIPs stood at ₹16,602 crore in FY24, up 28 per cent from ₹12,998 crore in FY23. Monthly investments topped ₹20,000 crore for the first time this year.

According to estimates by BofA Global Research, passive domestic flows led by the provident fund, pension funds, insurance funds and SIPs could contribute about $28 billion to equity inflows in CY24. Despite the high intensity of domestic/foreign flows, it’s the earnings, and not liquidity, which is driving Nifty’s returns in the long run, it said.

Domestic heft

The share of domestic mutual funds (DMFs) rose to a fresh all-time high of 8.9 per cent in NSE-listed companies for the quarter ended March. The passive funds’ share remained steady at 1.7 per cent, with the balance 7.2 per cent held by active funds.

FPI ownership in NSE-listed companies for the quarter ended March dropped to 17.9 per cent from 19.1 per cent in the previous year. Individual investors’ holding stood at 9.5 per cent.

Individuals, after adding their indirect ownership via mutual funds, now own a bigger share of the market (18.4 per cent) compared to FPIs (17.9 per cent) after a gap of 18 years. This gap is expected to widen further in the June quarter.

“This is a reflection of their growing role and significance in Indian equity markets,” NSE’s Chief Economist Tirthankar Patnaik said in a recent note.

The Union Budget proposals, manufacturing PMI data and the Fed Chair’s speech will dictate market movement in the near term. The rise in US jobless claims and weak housing data have raised expectations of a rate cut in September.

“Political stability and a sharp rebound in markets aided by steady DII buying and aggressive retail buying, has forced FPIs to turn buyers this month. FPI buying can sustain provided there is no sharp upmove in US bond yields,” said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

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