FIIs Vs. DIIs Their actions and Inference

 

Consider this-- an investor who had invested Rs. 10,000 in Nippon India Growth Fund (erstwhile Reliance Growth Fund) during its NFO (08/10/1995) has grown to Rs. 15,57,118  (as on 28/02/2021) logging an eye popping CAGR of 21.98%.

We Indian retail investors -- always suffered from FII phobia (fear of “heavy selling' by FIIs) one day” before exiting India lock, stock and barrel.

The FIIs seems to have played on to this fear of retail investors and have come to hold nearly 25% of the floating stock of Sensex—confident of the companies’ performance over long term and its impact on the stock prices.

Every new high made by the stock prices or indices are looked upon as “peak” by retail investors worthy of converting their equity holdings into say gold  or fixed deposit.

A majority of equity investors have gradually evolved as investment traders over the years rather than long term investors in true sense of the word.

Does the buying and selling by FIIs have any underlying message?

The answer is probably yes.

When the pandemic first struck India in March 2020, FIIs sold (net) Rs. 5,200 worth of equities, while Domestic Institutional Investors (MF, Insurance companies etc.) sold Rs. 825 crores (net) of equities to meet redemption pressure. Thereafter, FIIs went on a buying spree (because of attractive valuations) and bought (net) equities worth Rs. 36,910 crores over the next 4 months. Domestic Institutional Investors sold equities worth Rs. 7,263 during the said period. The Nifty went up from 9,553 (closing level of April 2020) to 11,387(closing of August 2020)

The buying spree started again from October 2020 (net buy Rs. 14,537 crores) when Nifty closed at 11642 and till March 2021, FIIs bought stocks worth Rs. 1,75,381 crores. Nifty closed at 14690. While DIIs sold (net) stocks worth Rs. 1,26,000 crores.

Consider the following table:-

	FII	DII	Nifty	Sensex
April 2020	-5209	-825	9553	32720
May 2020	13178	11356	9580	32420
June 2020	5493	2434	10302	34915
July 2020	2490	-10007	11073	37606
August 2020	15749	-11046	11387	38628
Sept 2020	-11410	110	11247	38067
October 2020	14537	-17318	11642	39614
November 2020	66307	-48339	12968	44150
December 2020	49992	-37293	13981	47751
January 2021	14775	-11970	13634	46285
February 2021	18023	-16358	14529	49099
March 2021	11747	5204	14507	49008

 

One thing that is evident from the table above is that Indians investors do not have the confidence in their own equity markets and therefore are not willing to hold on to their equity investments for long term and reap the benefit of not only compounding but also the positive effects of growth in our Indian economy.

We, Indian investors—are more willing to convert an asset returning 12-15% CAGR to an asset returning 8-9% and without any intermittent payouts.

It is because of our unfounded fear of FIIs exiting en masse’ that they have been able to gain control of roughly 25% of the free float of BSE.

The above numbers reinforces our belief that FIIs have more confidence in the potential of our equity markets than we have in our own market. It will be prudent to follow FIIs while investing—buy right, sit tight.