This is DII Street in October: FIIs meet their match in domestic funds

MUMBAI: As of this October, Dalal Street presented a study of sharp contrasts – and high records. First, foreign investors pulled out of Indian equities in October at Rs. 1 lakh crore, breaking the record set in the Covid-ravaged March 2020. Still, the fall in equity gauges was nowhere near as devastating as that month, with local funds matching the selling pace with record purchases. In the deal, domestic institutional investors (DIIs) may overtake foreign funds in ownership of domestically listed companies, for the first time this millennium – another record that points to a shifting center of gravity in ownership of Indian risky assets.

To be sure, detailed ownership data for October-December will be released in January. However, by the end of September itself, the ownership gap between foreign institutional investors (FIIs) and DIIs had narrowed to a record low of 109 bps, indicating the growing influence of domestic capital in Indian equities. “Indian capital markets have seen a dramatic shift in ownership over the past few quarters, with domestic investors taking the lead and FIIs losing influence,” said Pranav Haldia, MD, Prime Database Group.

SIP Contributors
“In the past, when FIIs would sell, the market would collapse and LIC and other domestic institutions would step in to prevent further losses. Now, things have changed,” said Haldia.

While the share of FIIs in NSE-listed companies increased from 17.39% in the quarter ended June to 17.55% in the quarter ended September, ownership by DIIs reached a record high of 16.46%, data from primeinfobase.com showed. DII ownership was 16.25% as of July. DIIs include mutual funds, insurance companies, pension funds and banks.

Historically, FIIs as a category have been major participants in the Indian markets. Their moves often influence market direction and valuation. However, domestic institutions have taken steps to effectively counter the fall in FII holdings in the last few quarters, market participants said.

Local taste

“Over time, local money has actually shifted from other asset classes to equities amid growth in per capita disposable income,” said Pratik Aggarwal, MD and CEO, Motilal Oswal AMC. “Despite heavy selling by foreign investors, domestic investors have shown resilience, helping to stabilize the market.”

In the September quarter, when the Nifty touched a record high of 26,000 at the end of the three-month period, FIIs invested Rs. 55,629 crore worth of shares were bought, while DII bought about Rs. 1.03 lakh crore was invested.

FII holdings fell by 29 basis points to 17.39% from 17.68% in the previous quarter, while DII holdings increased by 19 basis points to 16.46% from 16.25%.

SIP (systematic investment plan) contributions from mutual funds continued to break records every month, having crossed ₹20,000 crore in April. The latest data from mutual fund industry bodies showed that monthly SIP contributions rose to ₹ 24,508.73 crore in September from ₹ 23,547.34 crore in August. The number of new SIPs registered in September was around 7 million.