Foreign Portfolio Investors Withdrew RS 5,936 CR from Equities in May

Overview

– The conflict between Indian institutions and foreign investors is still going on, with the former continuing to buy while the latter remained net sellers on the stock markets. In the first week of May, foreign investors withdrew Rs. 5,936 crores from domestic equities, fearful of a second wave of pandemic infection and its economic consequences. According to NSDL data, foreign investors withdrew Rs. 9,659 crores in April after infusing money in the previous six months. Domestic institutional investors (DIIs), on the other hand, invested over Rs. 2,135 crores in the first week of May.

– Despite an increase in pandemic cases and FPI withdrawals, the Sensex rose 424 points to 49,206.47 last week. The DIIs, who came to the market’s rescue and bought over Rs. 11,359 crores in April, were the main contributors to the firm trend. FPIs carried away from indian securities after six-months of uniform net purchasing and sold net equities as their interest waned in the face of rising cases, in a never-ending struggle of conflicts between FPIs and DIIs. As a result, it’ll be crucial to keep an eye on how FPIs and DIIs perform in the coming weeks, as DIIs stole the show and gained supremacy this time.

– Because of the sudden increase in pandemic events, markets resorted to FPI sale. Since India has become the epicentre of the virus’s revival, investors are concerned about possible earnings downgrades, which could be more severe in mid- and small-cap companies. New restrictions and lockdowns imposed by various state governments would have an effect on demand as well as business operation. The relentless rise in hard product prices poses a danger to many manufacturing companies’ profit margins. So many possible negatives have converged, potentially affecting markets in the immediate future. We may expect FPI flows to remain sluggish in the near term, given the difficulties and sentiment.

– FPIs had been infusing capital into equities since October, prior to the outflow in April. Between October 2020 and March 2021, they invested over Rs. 1.97 lakh crores in equities.

What is FII vs DII?

The term ‘foreign institutional investor,’ or ‘FII’ refers to an investment fund or an investor based outside of a country who invests in that country’s properties. This is a widely used term in India to refer to foreign entities that invest in the country’s financial markets. ‘DII’ stands for ‘domestic institutional investors,’ on the other hand. DIIs, unlike FIIs, invest in the financial assets and shares of the country in which they are actually living. Political and economic developments influence both FIIs and DIIs’ investment decisions.

Types of FII & DIIs

Except for the location of the entity’s headquarters, there isn’t much of a distinction between FII and DII when it comes to their forms. There are four types of domestic institutional investors in India. Indian mutual funds, local pension plans, Indian insurance firms, and banks or financial institutions are all examples of this. FIIs for India, on the other hand, include hedge funds, pension funds, foreign insurance firms, and mutual funds that are not based in India.

Influence of FII & DIIs

The difference in influence between FII and DII is a function of the current economic situation. Domestic institutional investors now play a significant role in the success of the Indian stock market, particularly because foreign institutional investors are the country’s primary source of capital. However, India has imposed limits on the overall value of assets and the number of equity shares that foreign institutional investors may purchase within a single entity. This helps to limit the impact that FIIs can have on both individual companies and the financial markets of the country.