Stake of DIIs, such as MFs and insurance companies, in BSE 500 companies reached a record high of 16.1 per cent on average at the end of June, up from 15.3 per cent at the end of March and 14.5 per cent a year ago.
Domestic financial institutional investors were net-buyers for the third consecutive quarter in the first quarter (Q1) of 2022-23 (FY23). By comparison, FPIs once again pared their ownership of Indian equity stake in Q1FY23.
The shareholding pattern of BSE 500 companies suggests that MFs and insurance companies have been raising stake in listed companies for seven years, except for a brief period between June 2020 and September 2021 when they were net-sellers.
As a result, DIIs’ stake in BSE 500 companies is up nearly 55 per cent in seven years, from a low of 10.4 per cent at the end of September 2014 to 16.1 per cent at the end of June this year. By comparison, the period saw a decline in stake by both FPIs and promoters.
The average FPI stake in BSE 500 companies declined to 21.7 per cent at the end of June this year, against 22.23 per cent at the end of March this year and 24.26 per cent at the end of June 2021.
The combined stake of insurance companies and MFs (DIIs) in BSE 500 companies was worth Rs 29.8 trillion at the end of June this year, down 4.8 per cent from the record high of Rs 31.3 trillion at the end of March this year.
The value of DII stake in BSE 500 companies was, however, up 10.9 per cent year-on-year (YoY), thanks to additional share purchases by DIIs during the period.
Analysts say persistent net purchases of equity by DIIs arrested the decline in stock prices due to FPI sell-off.
For example, the combined value of FPI stake in BSE 500 companies was down 10.8 per cent YoY and 12.1 per cent quarter-on-quarter (QoQ) to Rs 40.1 trillion at the end of June. Owing to net purchases by DIIs, the combined market capitalisation (m-cap) of BSE 500 companies was down only 0.1 per cent YoY, notwithstanding FPI sell-off. The combined m-cap of BSE 500 companies was down 9.9 per cent QoQ in Q1FY23.
According to analysts, the continued rise in DII stake in listed companies is largely due to net purchases by equity MFs.
“There has been a sharp rise in retail participation in equity markets in recent years — both directly and indirectly. As a result, a record number of new investors have opened MF accounts and funds have seen a spike in fresh inflows. MFs have used inflows to raise their stake in companies,” says Chokkalingam G, founder, Equinomics Research & Advisory.
He expects the trend to sustain, given the unrelenting inflows into various equity MF schemes by way of systematic investment plans and new fund offers.
In contrast, fresh inflows by FPIs are expected to be either negative or at best small, given the monetary tightening by the world’s major central banks.
“The global liquidity conditions have tightened and they could become even more restrictive if the US Federal Reserve or the European Central Bank raises interest rates further. This will weigh on fresh FPI flows into Indian markets,” says Dhananjay Sinha, head-equity and chief strategist, Systematix Group.
This makes DII investment into equity markets crucial to the movement in the broader market in the future.
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