Balancing Act: National funds counter FII selling frenzy

By Sanjeev Sharma

New Delhi, June 19 (IANS): As FIIs are on the rise in Indian markets, domestic institutions, including mutual funds and insurance companies, have acted as a buffer, driven by the massive influx of retail money into the stock markets.

FII recorded the eighth consecutive month of outflows in May at $4.9 billion. However, the outflows were more than offset by the large DII inflows. In May 2022, DII recorded the highest inflows since March 2020 at $6.1 billion, according to a report by Motilal Oswal Financial Services.

The Nifty ended down 3% MoM at 16,585 in May – the second consecutive month of decline. However, Nifty remained resilient in CY22YTD despite multiple headwinds.

India was among the laggards in May. Russia (minus 7%), India (minus 3%) and Indonesia (minus 1%) finished down in local currency, while China (5%), Brazil (3%), Japan (2%). ), Taiwan (1%) and the UK (1%) closed higher. Over the past 12 months, the MSCI India (7%) has outperformed the MSCI EM (minus 22%), according to the report.

The cumulative outflows of the last 12 months from the FIIS are at the highest level at 25 billion dollars. In addition, FII hit the longest selling streak since the global financial crisis.

The Nifty ended down 3% MoM at 16,585 in May. This is the second consecutive month of decline and, in fact, the third steepest monthly decline since March 2020.

By sector, Autos (5%) and Consumers (1%) closed higher, while Metals (down 16%), Utilities (down 11%), Oil & Gas (down 10% ), real estate (down 7 percent) were the biggest losers, according to the report.

Institutional flows show the eighth consecutive month of FII outflows while DII inflows were observed for the 15th consecutive month.

India’s market capitalization to GDP ratio has been volatile, reaching 56% (of FY20 GDP) in March 20, from 80% in FY19. It has rebounded to 112% currently (of FY20 GDP). FY22 GDP), above its long-term average of 79%. The ratio was at the highest level since CY07. Currently, on GDP growth of 11% for FY23E, the ratio stands at 98%, according to the report.

Acuite Ratings said what, however, is more concerning at this stage is the high volatility in global financial markets, triggered by a sharp tightening of monetary policies in advanced economies. This continues to drive high and sustained FII capital outflows, adding to the rupee depreciation pressures already created by a higher trade and current account deficit.

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