The biggest story to write home about the domestic equity market from calendar 2015 is the waning clout of foreign portfolio investors (FPIs) and increased muscle power of domestic institutional investors (DIIs).
In a year, when FPI investment in domestic equities fell to a little over Rs 16,000 crore, or close to $3 billion, from a three-year annual average of $15 billion, the DIIs played the real market driver, pumping in well over Rs 60,000 crore.
This was possible because of a steady flow of retail investment into the domestic mutual fund schemes. That flow from retail investors as well as DIIs continued even when the domestic equity market turned lacklustre, and filled in the gap created by the FPI exit.
According to some estimates, domestic mutual funds received inflows of more than $20 billion in the past 18 months, out of which they pumped in almost half into equities.
Remember, DIIs were net seller of equities in calendar 2014, having sold stocks worth Rs 28,563 crore. This year, they have been net buyers of domestic equities in 10 out of 12 months. Net DII investment in domestic stocks during the year stood at Rs 66,733 crore.
Last year, FPIs were the main force behind the 30 per cent rally in domestic equities with some Rs 98,000 crore investments during the year. Calendar 2012 was the best year in the last 12 with FPI inflows worth Rs 1,28,359.80 crore to domestic equities.
The fact that DIIs were largely able to cushion the impact of FPI exit was evident from the market behaviour during May and September, when the benchmark Sensex actually gained even in the face of strong outflow of FPI money.
Even in June, the benchmark index shed weight only marginally in the face of strong FPI outflow.
FPIs sold shares worth close to Rs 9,000 crore during May and June, yet the BSE Sensex closed higher in May and ended only marginally negative in June. In September, when FPIs sold shares worth Rs 6,475 crore, Sensex gave a positive return of 1.78 per cent.
FIIs, which were net buyers of stocks to the tune of Rs 44,401 crore during the January-July period, were net sellers to the tune of Rs 27,725 crore during September-December amid a brisk selloff in emerging market funds.
Going ahead, the market is expecting a better year with the revival in FII sentiments. Macroeconomic data, global market trends, investment by foreign institutional investors (FIIs), the movement of rupee against the dollar and movement of crude oil prices will dictate trend of the market in the near term on the back of reduced risks over global liquidity and a correction in commodity prices to a decade’s low.