New Delhi

Domestic institutional investors (DIIs) have emerged as a stabilising force in the Indian stock market this October, purchasing stocks worth Rs 57,792 crore between October 1 and 11. This significant investment comes in response to a notable retreat by foreign portfolio investors (FPIs), who sold shares amounting to Rs 58,394 crore during the same period. The contrasting activities of these two investor groups have played a crucial role in preventing a major market downturn as detailed in a report by the Indian Express.

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The DII buying spree has been particularly pronounced on specific days. On October 3, they acquired stocks worth Rs 12,913 crore, followed by an impressive purchase of Rs 13,245 crore on October 7. In stark contrast, FPIs executed substantial sales, including a staggering Rs 15,243 crore on October 3 alone. As a result of these dynamics, the BSE Sensex experienced a sharp decline of 2,885 points, dropping from 84,266.29 on October 1 to 81,381.36 by October 11.

The resilience of DIIs can be attributed to sustained inflows into equity schemes. In September alone, inflows into equity mutual funds reached Rs 34,419.26 crore, slightly down from Rs 38,239.16 crore in August. The contribution from systematic investment plans (SIPs) also hit an all-time high of Rs 24,508.73 crore in September compared to Rs 23,547.34 crore the previous month. Analysts note that many funds, particularly Life Insurance Corporation (LIC), tend to adopt a contrarian approach by buying when others are selling.

LIC's performance has been noteworthy; it reported a profit of Rs 15,500 crore from the stock market in the June quarter—a year-on-year increase of 13.5 per cent. This trend reflects the corporation's strategy of capitalising on market fluctuations and underscores its pivotal role as a major institutional investor.

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The current trend of FPI selling has been influenced by shifting investment strategies favouring Chinese markets over Indian stocks. Following recent monetary and fiscal measures announced by Chinese authorities aimed at stimulating their slowing economy, many FPIs are reallocating funds towards Chinese equities. The Hang Seng index is currently trading at a price-to-earnings ratio of approximately 12, while India's Nifty index stands at around 23 times estimated earnings for FY25. This valuation gap has led some analysts to predict that FPI selling may persist for some time.

Despite the substantial outflows from FPIs, experts believe that the impact on the Indian stock market has been mitigated due to robust DII buying activity. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, remarked that "the massive FPI selling didn’t have a serious impact on the market since the entire FPI selling has been absorbed by DIIs who are receiving sustained fund inflows." He anticipates that this trend of FPI selling coupled with DII purchasing is likely to continue in the near term.

As the financial landscape evolves amid these contrasting investment behaviours, stakeholders will be closely monitoring how these dynamics unfold in the coming weeks and their implications for market stability and growth prospects in India.