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Domestic institutions in buy mode on stock market
September, 06th 2008

In a scenario of extreme pessimism surrounding the stock markets, one set of investors have kept faith: domestic institutional investors or DIIs.

While sensex has lost 6,000 points from the beginning of this year prompting retail (small) investors to follow foreign institutional investors (FIIs) who have been in a sell-mode all through outDIIs have provided the much needed support to the markets.

This is why their conviction, as evident from their continuous buying, in domestic equities stand outeven as every other influential investor segment has lost hope in stocks this year.

Consisting of banks, financial institutions, insurance companies and mutual funds, DIIs have net investments to the tune of Rs 48,179 crore till August this year, cumulative data for both Bombay Stock Exchange and National Stock Exchange show. FIIs are the biggest category of net sellers, offloading shares amounting to Rs 69,925 crore in the same period.

The investments put in by DIIs indicate the continuous inflow of funds through unit-Linked plans (ULIPs), insurance policies and mutual fund schemes may have been continuously deployed in the markets. It could be that retail investors who are cutting direct exposure in markets may be indirectly investing through mutual funds, insurance policies etc, Hitesh Agarwal, head of research, Angel Broking, said.

Insurance premiums collected by companies are substantial. There are over 500 equitylinked mutual fund schemes and significant number of insurance schemes that invest in stocks. But as the selling prowess of FIIs became pronounced accompanied by selling from retail investors also, DIIs have not been able to match them by stepping up their investments. On an average, DIIs have been net buyers of Rs 6,000 crore per month (January-August ) while the market makers called FIIs have been net sellers of over Rs 8,500 crore per month in the same period. After following FIIs for a substantial portion of the correction , retail investors have turned net buyers from June onwards.

However, the sheer lack of strong buying support has not helped the cause for equities. Non-resident Indians , a much smaller investor segment, have also remained net sellers of stocks to the tune of Rs 57 cr for the first eight months of the year.

While the retail segment tracks FIIs, DIIs who are more long-term in nature buy in such times of steep correction , Agarwal of Angel Broking said. High inflation, rising interest rates and global financial slowdown do not seem to deter this set from investing in stock markets.

However, other investment experts argue that in a sellers market, domestic institutional investors are merely playing the role of buyers. In a market (like this) some set of investors are always going to exit the market. Not everybody can sell at the same time. Plus, investors do not pay money to insurance companies as well as mutual funds to stay in cash, a markets expert said.

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