New Delhi. This week the Indian stock market saw an interesting trend. Foreign institutional investors i.e. FIIs continued selling, but heavy buying by domestic institutional investors i.e. DIIs did not allow the market to fall. Despite the fall in rupee and weak global cues, the market maintained its strength.
In the initial days of December, FIIs were net sellers in the cash market and made a huge sale of Rs 10,401 crore. Generally, such a big sale increases the pressure in the market. But this time the story was reversed as DII made purchases worth Rs 19,783 crore in the same period. This provided strong support to the market.
Why did FII selling increase?
Analysts believe that this time the main reason for aggressive selling by FIIs is the sharp weakness in the rupee. This year the rupee declined by about 5 paise against the dollar and foreign investors seemed worried about this. When the rupee weakens, FIIs see the value of their investments decreasing, so they increase selling.
The second reason is high valuation. Global funds believe that many sectors in the Indian market are trading at high valuations. In such an environment, FIIs like to earn profits and move money into cheap markets. Some such selling may continue in the coming weeks also.
Why are DIIs making huge purchases?
The fundamentals of DII are completely different. There is continuous fund inflow into mutual funds and insurance companies in the country. SIP inflows are at record levels. This provides strong backup to DIIs to make purchases in the market.
Apart from this, strong GDP figures and expectations of corporate earnings growth in the coming months have also further boosted the confidence of domestic investors. Analysts believe that the pace of the economy and the performance of manufacturing, consumer and banking sectors are motivating DIIs to continuously buy.
RBI’s rate cut and liquidity support changed the environment
There was another big positive for the research house this week. RBI reduced the repo rate by 25 basis points and also indicated to provide huge liquidity support. This created a bullish environment in the market.
Analysts say that when the economy is already strong and yet the Central Bank gives additional stimulus, then it has a direct impact on the sentiments of investors. Due to this, DII purchasing increased further.
What will be the trend in the coming weeks?
Although domestic conditions are strong, FII selling is not going to stop completely. Seeing the uncertainty and valuations in global markets, foreign investors will continue to book profits at higher levels. But the good news is that strong fund flows from DIIs are likely to continue. According to experts, the confidence of domestic investors will increase further due to strengthening of GDP and corporate earnings in the coming months. This will provide support to the market and despite ups and downs, sentiment will remain positive.
