DIIs outshine FIIs as Rupee depreciation triggers heavy foreign outflows

Mumbai, Dec 6 The heavy buying by domestic institutional investors (DIIs) overshadowed the persistent fund outflow by foreign institutional investors (FIIs) due to depreciation in Indian currency this week, analysts said on Saturday.

The first week of December has begun with sustained selling by FIIs on all days, as FIIs have sold equity for Rs 10,401 crore in the cash market.

This sell figure has been completely eclipsed by the sustained strong buying by DIIs, who bought equity for Rs 19,783 crore during this period, said VK Vijayakumar, Chief Investment Strategist, Geojit Investments Limited.

According to the analyst, the fundamental reasons behind the FII selling and DII buying are different. FIIs have been selling because of the sharp depreciation of the Rupee by around 5 per cent this year.

It is normal for FIIs to sell and take the money out during times of currency depreciation.

In contrast, DIIs have been investing systematically, assisted by continuous fund flows, and recently they have been buoyed up by the robust GDP growth numbers and expectations of an uptick in corporate earnings, going forward.

Meanwhile, the 25 bp rate cut by the RBI and the proposed huge liquidity infusion have further improved sentiments in favour of the bulls.

"The decision to give further monetary stimulus to the economy even when the economy is firing on all cylinders reflects a courageous pro-growth central bank," the analyst noted.

With pro-growth fiscal and monetary policies, growth regaining momentum and indications of accelerating earnings growth, DIIs will continue to buy, he added.

Meanwhile, despite the resilient domestic situations, FIIs are expected to continue pulling off funds in the coming week as well.

"The trends suggest that at higher levels, FIIs will again sell since they feel that valuations are on the higher side and they can sell and invest the money in cheaper markets," Vijayakumar said.

In this tug of war between FIIs and DIIs, there will be days of sharp movements in the markets, in response to news and events, he added.

For instance, if there is a fair trade deal between India and the US, that can buoy up the sentiments in both equity and currency markets.

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