Bears smell blood as local support starts to fade

Domestic institutional investors (DIIs), who have kept the bears at bay with sustained bursts of buying as foreign institutional investors (FIIs) pressed sell, may be running out of powder.

DIIs have been net buyers for 13 straight sessions, helping cushion the fall caused by negative global sentiment and sustained selling by FIIs fleeing to safer havens.

In the 15 sessions since the beginning of this month, local entities including insurance firms and mutual funds have bought Rs 4,103 crore in the Indian markets. They were net buyers in April, too, to the tune of Rs 2,191 crore.

On the other hand, FIIs have been net sellers by Rs 6,669 crore in May, after having bought Rs 9,900 crore worth of Indian equities in April.

But now, marketmen say the DII cushion may be wearing out. And the bears may be drooling in anticipation.

“DIIs are putting money as a decent amount of correction has taken place. If the markets fall further, they will exhaust their cash position and become fully invested. That means, further FII outflows could create problems,” said Sampath Reddy, head - equities, Bajaj Allianz Life Insurance.

“FIIs, who were earlier hedging their cash portfolio, have started selling aggressively. Domestic institutions, on the other hand are providing support as of now. It’s mostly LIC and private insurers who are deploying the cash,” said Anish Damania, business head - institutional equities, Emkay Global Financial Services. “But if FIIs continue to sell for a week or so, we may see market coming under severe pressure.”

Dilip Bhat, joint managing director, Prabhudas Lilladher group, supports the view. “We could see a further correction of 8-10% over the next couple of months,” he said.

Aided by domestic buying, Indian markets have been more resilient than other emerging markets in recent times. Over the last one month, the MSCI Emerging Market Index, a benchmark index for emerging market performance, has fallen 13.66%. The Indian markets have fallen a little over 7%.

India has also outperformed most developed markets. In Asia, Hong Kong’s Hang Seng has fallen 9.14% in the same period; Chinese markets have dropped 13.41%; Japan’s Nikkei has fallen 10.35%. Among European indices, the UK’s FTSE 100 has fallen 11.54% while the French benchmark, the CAC 40, dropped 13.17%. US markets have fallen 8%.

The upside remains limited, feel experts. “Although valuations are attractive and fundamentals remain, we are likely to remain range-bound for sometime,” said Himanshu Varia, head - institutional sales at Asit C Mehta Investment Intermediaries.