While foreign institutional investors (FIIs) have maintained an active interest in Indian equities in the last five months, their domestic counterparts continue to offload stocks in the open market.
The year-to-date sales of domestic institutional investors (DIIs) have reached about $10 billion, almost double of what was seen in the 2010 rally.
Market observers say that while the sustained redemption pressure on domestic mutual funds has played a key role in such sizeable selling, insurance companies are believed to have booked profits in the current rally to participate in the future IPO line-ups. According to the latest data, DIIs, which include domestic financial institutions, mutual funds and insurers, have sold shares worth R54,000 crore or $10 billion in the year so far, against R1.16 lakh crore or $22.2 billion worth of equities purchased by FIIs. In 2011, DIIs were net buyers of $6 billion equities and sold close to $4.7 crore of stocks during 2010.
Despite a positive outlook for 2013, investors are booking profits in mutual fund portfolios as the market has remained flat for the last five years even after a 25% year-to-date rally.
?Investors are exiting their MF exposures as the current market rally has given an opportunity to recover their capital value,? said Ramanathan K, CIO, ING investment management. Domestic mutual funds witnessed a net outflow of close to R12,700 crore for the first 11 months this year. These redemptions accounted for close to 25% of the net auctions by the DIIs.
As per Sarvana Kumar, CIO of Tata AIA Life insurance life, insurers have not seen redemption pressure, but they liquidated some stocks at fair values in the current market rally.
?Private insurance companies have taken advantage of the recent market gains to churn their portfolios at fair value. The exits also give them cash surplus to participate in the upcoming public and follow-on issues,? he added. However, a significant portion of the DII selling is attributed to the Life Insurance Corporation (LIC) getting equipped with liquidity to support the government?s divestment plan for this fiscal.
The government commenced its 2012-13 divestment cycle as the part of the reforms agenda that has buoyed the market since mid-September.
While it plans to raise close to R30,000 crore for the fiscal through share sales of public sector entities, the first two stake sales in Hindustan Copper and NMDC that took place during the last three weeks have fetched close to R6,700 crore.
Market sources have pegged LIC?s participation in these sales, which were carried out through the offer for sale (OFS) route, at about R1,500 crore.
On November 21, two days prior to the Hindustan Copper stake sale, the finance ministry raised LIC?s investment cap in a company to 30% of the paid-up capital from 10% earlier.
