Among all the factors that underpinned the Indian market despite less-favourable global cues and weakness in the country's macroeconomic health, a sustained inflow of foreign funds stands out as the most important.
As per a report by Edelweiss Securities, during the October-December quarter, foreign institutional investors (FIIs) were net buyers of nearly $4.88 billion in Indian equities.
However, this was in contrast to investment trends by DIIs as they were net sellers of $793 million in the Indian market during the October-December quarter.
What FIIs & DIIs bought in Q3FY20
Top private banks were on the radar of the foreign institutional investors (FIIs) during October-December quarter of FY20 as they added ICICI Bank, RBL Bank and IndusInd Bank in the quarter, data from Edelweiss Securities showed.
Other than the banks, FIIs continued adding insurance names such as HDFC Life Insurance Company, ICICI Lombard General Insurance Company, SBI Life Insurance Company and ICICI Prudential Life Insurance Company, like the previous two quarters, to their portfolios.
ICICI Lombard General Insurance Company, RBL Bank, Crompton Greaves Consumer Electricals, Quess Corp, Phoenix Mills and Shree Cement were among the top stocks that were added quarter-on-quarter (QoQ) by both FIIs and DIIs, said Edelweiss.
On the other hand, stocks whose institutional holdings fell QoQ were Hero MotoCorp, Bank Of Baroda, Federal Bank and Magma Fincorp.
"QoQ and YoY, FIIs added SBI Life Insurance, Shriram Transport, ICICI Lombard, HDFC Life, Mahanagar Gas and RBL Bank, but cut holdings in Cummins India, Tata Power, United Breweries, Cipla and Federal Bank," said Edelweiss.
Changes
During the quarter, churn was seen in consumer, cement & construction, NBFC, metals and pharma by major institutions. FIIs increased holdings across private banks, insurance and upstream and reduced holdings in telecom, IT, consumer & FMCG and auto, Edelweiss said.
On the other hand, while DIIs added telecom, pharma and IT, FIIs reduced holdings in them.
Domestic institutions increased exposure to IT, cement & construction, capital goods, NBFC and telecom. They reduced exposure to consumer & FMCG, auto and power, data from Edelweiss showed.
Will the trend continue?
Analysts and market experts point out that the flow of funds will depend on the global cues and the movement of rupee and crude oil prices and retail investors should not read too much into the contrasting trend of FIIs and DIIs.
"It is never rational for a retail investor to read too much into the stance taken by the institutional investors, especially when there is a wide divergence in strategies," said Paras Bothra - President of Equity Research Ashika Stock Broking.
"Among the sectors, there is some more pain for the auto sector and thus clearly dumped for the time being while after the Budget, there was some significant correction in insurance companies and smart FIIs have latched on to those. The same was with select private sector banks which continues to remain attractive vis-à-vis PSU banks. Apart from those, select FMCG & consumer players have traded at extremely high valuations which although command domestic appeal but appear as profit-booking candidates for FIIs," Bothra added.
Analysts highlight it is difficult to forecast whether the contrasting trend of institutional investors will continue or not but they are optimistic that the Indian market will continue to be attractive for foreign investors.
Rahul Agarwal Director at Wealth Discovery/EZ Wealth is of the view that the year 2020 is likely to be a favourable one in terms of inflows in the Indian equity markets. "FIIs are bullish on Indian equities as they offer relatively high long-term earnings growth potential across a variety of sectors," he told to Moneycontrol.
"FIIs have remained overweight on India as it has enjoyed better positioning among EM. The size and growth potential of the Indian economy make investments in India especially attractive, this trend is expected to sustain going forward as the Indian economy is on the path of recovery," he added.
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