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Nifty: SIPs save the day for Dalal Street after FPIs sell big

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Mumbai: As foreign funds took out over $6.6 billion (Rs 48,000 crore) from the Indian market during January-March, domestic funds — which saw Rs 8,500 crore coming in through the systematic investment plan (SIP) route every month — cushioned that selling to a large extent. With net buying of over $10 billion (Rs 73,500 crore), the domestic funds countered the outflow by foreign portfolio investors (FPIs), but the leading indices closed about 29 per cent lower, a report by Motilal Oswal Financial Services noted.

As a result of this divergent trend in institutional trading, FPI holding in the NSE 500 companies during the quarter fell to a five-year low of 21 per cent, while domestic holding in these companies rose sharply to 14.8 per cent — a nearly four-year high. With domestic savings being channelised more towards financial savings in recent years, the FPI-DII holding ratio has also fallen to a multi-year low of 1.4 per cent, the report said. Total domestic holding in the NSE 500 companies got a further boost as promoters took advantage of the sharp slide in stock prices to hike their stakes.

According to a top institutional dealer, one of the main reasons for this sharp dip in foreign holding was India’s weak economic fundamentals for over two years, which had initiated “risk-off trades” for FPI fund managers. Then Covid-19 issues “threw everything out of gear”. “Partially, the selling in January-February (2020) was India-specific and, to some extent, it was an emerging market issue,” the institutional dealer said. “It was a global call then, since India was not doing well on the economic front.”

Just a day before India entered its first lockdown on March 25, both the sensex and the Nifty fell to multi-year lows as foreign funds continued their selling of risky emerging market stocks, including those of Indian companies. However, at the same time, domestic funds — led by strong inflows through the SIP route in mutual funds — bought stocks at beaten-down prices to partially cushion the foreign fund selling.

“Over the last five years, the incremental dominance of domestic capital savings has gone up with consistent and rising SIP investments along with a shift toward financial savings. Consequently, the FII-DII ownership ratio in the Nifty 500 is at a new low and has declined to 1.4 from 2.2 in the last five years,” the report pointed out. “In the last one year, an increase in the FPI-DII ratio was recorded in the insurance sector. Telecom, real estate, private banks, cement, healthcare, automobiles, retail and technology were the key sectors to see a decline,” the report added.

The report also pointed out that in India’s top 500 companies, foreign funds have the highest ownership in private banks (at 44.6 per cent), followed by NBFCs (35.6 per cent), telecom (21.7 per cent), oil & gas (21.3 per cent) and real estate (20.4 per cent). On the other hand, domestic funds have the highest ownership in capital goods (23.9 per cent), metals (21.2 per cent), private banks (20.3 per cent), utilities (19.5 per cent) and PSU banks (17.8 per cent).

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