Retail Inflows Take Cues From Domestic Institutions Amid Largest FPI Sell-Off

In a month marked with the largest outflows from Indian equities that foreign portfolio investors have ever made, the benchmark Nifty 50 has recorded its largest pullback from lifetime-high levels in nearly five months.

October, so far, has seen FPI outflows cross the $10-billion mark for the first time, while domestic institutions countered these outflows with a steady stream of inflows.

Amid this tug of war between domestic institutions and foreign investors, retail investors were the second largest source of inflows into Indian equities.

Even as Indian equities saw a broad-based rally, foreign portfolio investors had remained on the sidelines amid concerns of elevated valuations, while their holdings in Indian equities continued to remain at the lowest in 12 years.

The month of October has seen FII lead outflows at Rs 90,000 crore, the largest ever selling, even on an intra-month basis.

This figure is even larger than the outflows recording during the month of March 2020, following the Covid-19 selling spree, when foreign investors' outflows hit a high of Rs 62,433 crore.

Amid the FPI-led outflows, domestic institutions have infused cash into the market, supported by strong flows from mutual funds, a steady stream of liquidity provided by retail investors through systematic investment plans, and a corpus of cash held by active equity schemes which stood at Rs 1.49 lakh crore, as of Sept. 30.

The total inflows by DIIs, which include those made by banks, insurance companies, mutual funds, alternative investment funds, and portfolio management services stood at nearly Rs 90,000 crore.

While outflows from foreign investors and inflows from domestic institutions countered each other in a near-perfect balance, retail investors were the second largest buyers of Indian equities during the month.

Till Oct. 21, retail investors had infused over Rs 23,500 crore into Indian equities, second only to mutual funds, who added Rs 68,400 crore till that date, NSE data showed.

For the above figure, the exchange also considers Hindu Undivided Families, individuals/proprietorship firms, non-residential Indians, and partnership firms under the retail category.

It is notable that even as FPIs had remained largely on the sidelines with cumulative flows oscillating between net positive and negative, their ownership in Indian equities is considerably larger than any other category of investors.

FPI holdings in Indian equities stood at 17.6% as of June 30, and 36.3% among the non-promoter held share of equities, according to NSE data.

Individual investors hold the second largest share at 9.5% of market cap for NSE listed companies, and 19.9% of the free float market cap, which is considerably lower than that for FPIs.