Domestic Investors In India Break Records With Rs 2 Trillion Equity Buys In 2024

The buying spree among Domestic Institutional Investors (DIIs) in India has surged in the last three months. In March, Rs 56,356 crore was logged, followed by Rs 40,720 crore in April, and Rs 45,000 crore till date in May 2024.

Domestic institutional investors have net bought over Rs 2 trillion worth of shares so far in 2024. This is the second time in Indian market history after 2022 that DIIs purchased Indian equity exceeding Rs 2 crore. This milestone was achieved within just 96 sessions in 2024.

Recent Trends in DII Buying

The buying spree has picked up recently, with March logging Rs 56,356 crore, April Rs 40,720 crore, and May (till date) Rs 45,000 crore. These purchases have helped offset the net $2.37 billion worth of selling by Foreign Institutional Investors (FIIs).

Vinit Sambre, Head of Equities at DSP Mutual Fund, attributed the inflows to expectations of stable government after the elections and continued momentum in earnings. Domestic institutions have been aggressive in 2024, compared to 2022 and 2023.

Comparison with Previous Years

They soaked up Rs 1 trillion worth of shares in 57 sessions and the second trillion in 39 sessions. In 2023 and 2022, it took 59 and 158 sessions, respectively, to reach Rs 1 lakh crore. In 2021, it took 244 days.

Swarup Mohanty, Vice-Chairman and CEO of Mirae Asset Investment Managers (India), noted a significant shift in the structure of inflows into Indian stock markets post-COVID. Inflows through Systematic Investment Plans (SIPs) have now risen to around Rs 20,000 crore per month.

Shift in Market Dynamics

Employment Provident Fund Organisation, PMS, AIF, insurance companies, and lumpsum investments into MFs could easily account for another Rs 30,000-Rs 32,000 crore per month, Mohanty said. He emphasized a permanent change in the role of DIIs, anticipating continued growth in equity culture and SIP investments.

Mohanty expects monthly SIP inflows to hit Rs 25,000 crore by December. Elara Capital reports a significant influx of Rs 6.5 lakh crore in DII buying over the last three years, driven by active retail investors using SIPs.

Impact on Market Volatility

This shift marks a new era in India's market dynamics since CY15, with domestic flows consistently surpassing those of FIIs. The transition from savings in physical assets to financial ones has solidified domestic flows as the primary market force. Despite global uncertainties, inflation, and interest rate challenges in 2022, FIIs withdrew $17 billion, yet the Nifty only corrected by 6%, showcasing the resilience of domestic flows.

This shift has also reduced overall market volatility, with a 29% decline in average volatility since CY15, excluding major events.

Potential Risks Ahead

Contrary to the prevailing trend, a recent Jefferies report warns of rising risks of a reversal in domestic fund flows. The report highlights that the share of equity flows in financial savings has exceeded the decadal average, with less than half of these flows being predictable.

Regulatory actions on derivatives are cited as potential triggers for this reversal. Titled "Is $7 bn/month sustainable?", the report underscores the staggering domestic equity inflows of $7 billion per month in 2024, twice the previous high and over 3 times compared to a year ago.

Regulatory risks are also emphasized, particularly regarding the sharp increase in futures and options turnover, which surpasses 100% turnover of the Indian market cap. Any regulatory action may impact derivatives volumes, potentially affecting small and mid-cap stocks.

The report suggests that if domestic flow reversal leads to a dip in large-cap holdings, foreign portfolio investors (FPIs) may intervene to limit the downside in this segment.

FAQs

How much have Domestic Institutional Investors (DIIs) net bought in shares so far in 2024?

Domestic Institutional Investors have net bought over Rs 2 trillion worth of shares so far in 2024.

What was the purchase amount by DIIs in March, April, and May 2024?

In March 2024, DIIs logged Rs 56,356 crore, followed by Rs 40,720 crore in April, and Rs 45,000 crore till date in May.

How does the DII investment in 2024 compare to its past performance?

This is the second time in Indian market history after 2022 that DIIs purchased Indian equity exceeding Rs 2 crore, achieving this milestone within just 96 sessions in 2024.

What has contributed to the recent surge in DII buying spree?

The recent surge in DII buying spree has been attributed to expectations of a stable government after the elections and continued momentum in earnings.

What has been the impact of domestic investment flows compared to Foreign Institutional Investors (FIIs) since CY15?

Since CY15, domestic investment flows have consistently surpassed those of FIIs, leading to a new era in India's market dynamics and reducing overall market volatility by 29%, excluding major events.