NEW DELHI: The mutual fund industry has often come to the rescue of the domestic equity market in recent times whenever foreign institutional investors (FIIs) have turned net sellers.
After remaining net buyers in the domestic stock markets since April this year, FIIs have sold shares worth of ₹ 13,199.68 crore (net) in the past one-and-a-half months till November 16. On the other hand, net investment of domestic institutional investors stood at ₹ 16,408.33 crore during the same period.
Market experts point out that the rising probability of an interest rate hike by the US Federal Reserve in the near term and firm bond yields in the US are taking foreign investors money away from emerging markets since October.
Fed Chair Janet Yellen on Thursday said a rate hike is likely 'relatively soon’ if the American economy continued to show signs of improvement.
During April-September, FIIs poured in ₹ 46,797.89 crore, whereas domestic institutional investors turned net sellers and sold shares worth ₹ 5,820.77 crore during this period.
Rajeev Thakkar, CIO and director of PPFAS Mutual Fund, said, "More domestic savings in mutual funds in the form of SIPs are reflecting in the mutual fund inflows to equities. However, we are sitting on 10 per cent cash in the present market conditions. Expectation of a rate hike by the US Federal Reserve and robust bond yields are putting pressure on foreign money. In the long term, I believe things will settle down and we will see a market revival by December 2017."
After Yellen's statement about an imminent rate hike in the coming months, there are chances that foreign institutional investors will withdraw more funds in the coming weeks, which may impact stocks having higher FII exposure.
Barring KPIT Technologies, ICICI BankBSE -2.76 % and StridesBSE -2.69 % Shasun, companies that have more than 35 per cent FII holdings have given negative returns between October 1 and November 17.
HDFC, Bharat Financial, Indiabulls Housing, Magma FincorpBSE -2.89 %, Tata MotorsBSE -2.72 % DVR and KPIT Technologies are among the companies in which foreign institutional investors held more than 50 per cent stake as of September 30, 2016.
Madhusudan B, Head of India sales at UBS, said in an interview with ETNow: "What attracts global investors to India is largely the quality of companies that we have over here in India and that is both relative to the region as well as emerging markets. Rising bond yields, demonetisation are near-term triggers which can change investment decisions of FIIs. FII money invested in India is in high quality blue chip stocks and I do not think investors will sell those because of demonetisation or the spike seen in US bond yields. At the same time, I would like to highlight that what you are seeing is because of near-term movement in yields, which is possibly causing near-term opportunity for investors. In that sense, this is more of volatile money, which will create near-term opportunities for investors."
BSE benchmark Sensex was down nearly 6 per cent at 26,227 on November 17 from 27,865.96 on September 30 this year.
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