Ever since tax notices were sent to foreign institutional investors (FIIs) in the last week of April, they have largely shied away from the Indian equity markets. By the time the government realised this and relieved the nerves of FIIs on the MAT issue on September 2, it was too late. The China slowdown and subsequent yuan devaluation had taken over the sell-off baton.

FIIs have been consistently selling since May and have offloaded ₹31,310 crore till August. Even in September, FIIs have been sellers to the tune of ₹3,925 crore.

DIIs, new heroes

In this scenario, domestic institutional investors (DIIs) have emerged as the new heroes of the Indian equity market. Their have bought shares worth ₹37,590 crore during May-August and ₹4,035 crore in September.

But this is nothing new. DIIs have always adopted a different strategy. The government-led life insurer has bought while foreigners have sold.

“In the past also, LIC has supported the market during falls. It accumulates shares when market falls and sells when the market moves up,” said Alex Mathews, Head — Research, Geojit BNP Paribas.

Diminishing FII clout?

This gives rise to the question – has FIIs’ clout in the Indian equity market waned? Answers are mixed.

R Sreesankar, Head — Institutional Equities, Prabhudas Liladher, does not believe that DIIs’ activity will overtake FIIs on a sustainable basis. “Right now there is flight from high risk, which EMs are posing in terms of falling commodity prices, falling exports, currency depreciation. There are questions being raised on growth in many emerging markets.”

The Indian equity market is very sensitive to FII inflows, which could be adversely hit if the US hikes rates next week.

“This chaos is providing huge opportunity to retail investors to invest in high quality stocks. As the global concerns stabilise, India is likely to emerge as one of the best equity markets amongst the EMs,” a market expert who did not wish to be named, said.

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