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DII selling intensifies with $11 bn in exits so far in 2013

The pace of selling by domestic institutional investors has picked up since the Indian equity market scaled new highs in the first week of November

The pace of selling by domestic institutional investors has picked up since the Indian equity market scaled new highs in the first week of November, data compiled by FE show.

In the week that followed the 30-share Sensex closing at its highest level of 21,239.36, DIIs have sold nearly $725 million worth of equities, taking their year-to-date selling to $11billion. Their exits in the year so far have thus surpassed their total liquidation of close to $10.8 billion seen in 2012 when the benchmark index rallied nearly 26%. In 2013 so far, the Sensex has clocked in 4% of gains.

On Wednesday, DIIs sold $40 million, while foreign institutional investors bought nearly $47 million in Indian equities, as per the preliminary data on stock exchanges.

Market experts say the rally towards a new high and its subsequent retreat, amid persistent fundamental concerns, has led to increased selling pressure from DIIs. The Sensex declined 4.9% in the last seven trading sessions to 20,194.40 as the rupee fell below the 63-mark against the dollar after nearly two months.

?Notwithstanding the level of the benchmark, the fact remains that the Sensex has not budged in the last five years. If one adds the factors of inflation and opportunity cost, the equity market returns look drab. Many investors, who continue to prefer bank and fixed deposits have reduced their stock-market portfolios in the recent rally,? said an executive with a domestic brokerage house.

DIIs comprise mutual funds, domestic financial institutions, banks and pension funds and, often, also reflect the mood of retail investors who invest via instruments like mutual funds.

It is not surprising then that the recent Amfi data showed that equity mutual funds saw R3,225 crore of outflows in October, when the market rallied 9.2%, its highest monthly gain since January 2012. Equity schemes have seen R8,579 crore of outflows in the first 10 months this year compared to net exits of R8,065 crore in the same period last year.

As per Nirakar Pradhan, CIO, Future Generali Life Insurance, the redemption pressure on mutual funds and equity-linked insurance products have sustained for most part since late 2010.

?Investors have adjusted their risk-return profile considerably towards more conventional fixed-income products. Despite minimal incremental inflows, the institutional players are adjusting their portfolios towards export-oriented sectors to offer good performance,? added Pradhan.

While the rally in the benchmark has come on the back of strong gains in blue chips that typically attract FII buying, the broader market is expected to benefit only when participation from retail investors goes up.

In 2013, BSE 500 and BSE mid-cap indices have given negative returns of 2.9% and 14.6% as only risk-inclined investors generally look for market-wide buying opportunities in a difficult economic scenario.

?Many interest rate-sensitive and capex-driven sectors and stocks are trading at very cheap valuations. However, there is no earnings visibility for these companies. It may take another three-to-six months for investors to start discounting a recovery in India?s economic growth,? said another expert.

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First published on: 14-11-2013 at 03:53 IST
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