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Domestic Institutional Investors Outperforming Foreign Counterparts in the Equity Markets

Equity Market Performance: Domestic Institutional Investors Outshine Foreign Counterparts

Indian Equity Market Witnesses Shift in Institutional Investor Preferences

In the first quarter of 2023, domestic institutional investors demonstrated unwavering confidence in the Indian stock market, with an inflow of funds amounting to Rs 304 billion. This figure highlights their continued optimism and belief in the market’s potential. Conversely, foreign institutional investors (FIIs) experienced a remarkable turnaround in the June quarter, as they invested a staggering Rs 809 billion, a significant shift from the Rs 247.8 billion outflow in the previous quarter, as per data from the Centre for Monitoring Indian Economy (CMIE).

The data further reveals a consistent influx of funds from domestic mutual funds, with the last 12 quarters showcasing them as net buyers. Notably, the period spanning from the September 2021 quarter to the June 2022 quarter recorded the highest inflow of funds from domestic mutual funds. In the December quarter of 2022, FIIs invested Rs 399.4 billion, while domestic mutual funds contributed Rs 143.7 billion. Similarly, the September quarter of 2022 witnessed a substantial FII inflow of Rs 545.4 billion, surpassing the Rs 120.3 billion inflow from domestic investors.

However, the market experienced a downturn in FII investments during the March and June quarters of 2022, characterized by a mass exodus of foreign institutional investors from the Indian market. In March 2022, FIIs withdrew Rs 1,166.6 billion, contrasting with an inflow of Rs 690.2 billion from Indian mutual fund investors. Similarly, in June 2022, FIIs withdrew Rs 1,106.3 billion, while domestic institutional investors contributed Rs 594.6 billion.

Insights from AMFI Data

Data from the Association of Mutual Funds in India (AMFI) for May reveals a 50% reduction in overall equity fund investments, with large-cap funds experiencing the most significant outflow. In May, equity inflows amounted to Rs 3,240.30 crore, a decline from Rs 6,480.29 crore the previous month. Notably, large-cap funds witnessed an outflow of Rs 1,362 crore during May.

Despite the fluctuating inflow and outflow figures in recent months, the consistent growth in mutual fund folios signifies investors’ enduring trust in the industry. In May, the total number of MF folios reached a record high of 14,73,75,502, with retail assets under management (AUM) amounting to approximately Rs 21,76,840 crore. Retail scheme folios, including equity, hybrid, and solution-oriented schemes, accounted for 11,76,37,747 folios.

AMFI emphasized that despite various challenges, the market has performed reasonably well, with the industry’s net AUM reaching Rs 43.20 lakh crore as of May 31, 2023. Notably, systematic investment plans (SIPs) witnessed their highest-ever contribution of Rs 14,748.68 crore, indicating their popularity among retail investors for long-term wealth creation.

Note: The above article is a paraphrased version of the provided information and does not contain direct quotations.

In the dynamic landscape of the Indian equity market, the investment preferences of institutional investors have undergone notable shifts. The March quarter of 2023 showcased the unwavering confidence of domestic institutional investors, with a substantial inflow of funds amounting to Rs 304 billion. This inflow underscores their continued belief in the market’s potential and stability. On the other hand, foreign institutional investors (FIIs) experienced a significant turnaround in the June quarter of 2023. Surprisingly, they invested a whopping Rs 809 billion, marking a remarkable reversal from the Rs 247.8 billion outflow witnessed in the previous quarter, as reported by the Centre for Monitoring Indian Economy (CMIE).

Delving deeper into the data, it becomes evident that domestic mutual funds have played a pivotal role in driving the consistent inflow of funds into the market. Over the past 12 quarters, mutual funds have consistently emerged as net buyers, highlighting their confidence and active participation in the market. Particularly noteworthy was the period spanning from the September 2021 quarter to the June 2022 quarter, which witnessed the highest influx of funds from domestic mutual funds. This sustained support from domestic investors has provided stability and liquidity to the Indian equity market during various phases.

However, it is essential to acknowledge the challenging periods that the market has encountered, resulting in significant outflows by foreign institutional investors. The March and June quarters of 2022 were particularly tumultuous, as a mass exodus of FIIs occurred, with March 2022 witnessing a staggering outflow of Rs 1,166.6 billion and June 2022 experiencing an outflow of Rs 1,106.3 billion. In stark contrast, domestic mutual funds and institutional investors displayed resilience by continuing to invest, even during these challenging times.

Shifting the focus to the recent data provided by the Association of Mutual Funds in India (AMFI), it reveals a decline in overall equity fund investments in May 2023. The equity inflow during that month amounted to Rs 3,240.30 crore, representing a significant decrease from the preceding month’s figure of Rs 6,480.29 crore. Notably, large-cap funds faced the brunt of this decline, with an outflow of Rs 1,362 crore in May.

Despite the fluctuating inflow and outflow patterns observed recently, the growth of mutual fund folios remains robust, indicating the enduring belief of investors in the industry’s potential. In May, the total number of mutual fund folios reached an all-time high of 14,73,75,502, with retail assets under management (AUM) reaching approximately Rs 21,76,840 crore. Within the retail segment, equity, hybrid, and solution-oriented schemes accounted for 11,76,37,747 folios.

AMFI emphasized the resilience of the market, acknowledging the headwinds faced, yet highlighting its reasonably strong performance. As of May 31, 2023, the industry’s net AUM stood at Rs 43.20 lakh crore. Notably, systematic investment plans (SIPs) witnessed a record-high contribution of Rs 14,748.68 crore, indicating that retail investors favor SIPs as a preferred instrument for wealth creation over the long term.

The continuous evolution of institutional investor preferences in the Indian equity market reflects the interplay of various factors such as market conditions, economic indicators, and investor sentiment. These shifts shape the market’s dynamics, ultimately influencing investment flows and performance. As investors closely monitor these trends, it will be interesting to observe how the market evolves and adapts in the coming quarters.

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