Domestic Institutional Investors (DIIs) marked a milestone in October 2024 by investing over ₹1 lakh crore in Indian equities, setting a record for the highest monthly DII inflows. This steady DII activity has provided stability in a volatile market, especially significant as Foreign Institutional Investors (FIIs) continued heavy offloading, with outflows totaling ₹85,000 crore ($11 billion) for the month.
DII Investment Surge: A Historic October
In 2024, DIIs have invested around ₹4.41 lakh crore, with two months left in the fiscal year, showing an increasingly robust commitment to the Indian market. Market experts attribute this shift to growing retail participation, notably through mutual funds, which has reshaped the DII investment landscape, reinforcing stability and high valuations even amid fluctuations from FII actions.
“Strong SIP contributions, alongside retirement and insurance funds, are fueling the DII inflows,” said Ritesh Jain, Co-founder of Pinetree Macro. He emphasized that India’s retirement flows are seeing momentum similar to a “401(k) moment,” where local investment growth helps offset foreign outflows.
Notable Monthly DII Investments
Historically, DIIs have experienced only a few months of exceptionally high inflows. October’s record-setting ₹1 lakh crore inflows have surpassed previous highs:
- March 2024: ₹56,356 crore
- May 2024: ₹55,740 crore
- March 2020: ₹54,857 crore
- May 2022: ₹49,400 crore
Amit Kumar Gupta, founder of Fintrekk Capital and SEBI-Registered Research Analyst, noted that these gains are a culmination of trends over the last four years, where SIP volumes have tripled and new fund offerings (NFOs) have drawn significant investments across sectors. “This trend points to a structural shift favoring equities,” he added.
Market Impact and Forecast
Analysts project that the Nifty index will likely remain stable or see slight gains (0-5%) as we approach Samvat. Corporate earnings, which saw double-digit growth for four years, are now facing pressure from rising commodity prices and fading banking sector tailwinds. However, there are several near-term positive indicators:
- Festive Season Demand: The ongoing festive season has boosted consumption, particularly in rural areas, due to a better-than-expected monsoon.
- Global Monetary Policy Shift: The US Federal Reserve and other central banks are signaling a shift toward monetary easing, which could enhance the attractiveness of risk assets globally.
Despite these headwinds, many analysts believe these positive factors may lend support to DIIs as the year closes.
FII Sell-Off Hits Record Levels
While DIIs have been reinforcing their positions, FIIs have been exiting the Indian market at record rates. In October alone, FII outflows reached ₹85,390 crore. According to NSDL data, this marked one of the largest monthly FII sell-offs in recent history, second only to March 2020, which saw ₹62,433 crore in FII exits.
Factors Driving FII Outflows
FII sell-offs have been motivated by several factors:
- Geopolitical Concerns: Rising global tensions have dampened investor sentiment.
- Elevated Indian Market Valuations: High valuations in the Indian equity market have led to profit-booking by FIIs.
- Interest in Chinese Markets: The Chinese government’s stimulus efforts have drawn investors, luring funds away from India.
- Subpar Earnings: Weaker-than-expected Q2 earnings in India further contributed to FII outflows.
Looking Forward
While FIIs have shown a preference for pivoting to Chinese markets, many experts believe India’s strong DII inflows signal resilience. The combination of robust local participation through mutual funds, sustained SIP flows, and insurance contributions is likely to help counter FII exits, especially as India’s investment landscape matures. With local funds poised to grow further, India’s equities could see continued support and relative stability.
By examining DII and FII activities, it is evident that the Indian market dynamics are evolving, with strong domestic participation contributing to a sustainable investment ecosystem.
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