FPI, DII market share falls to 15-year low

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In June, the market share of institutions in average daily turnover was at 30% while retail investors at 70%. While Sensex and Nifty are hovering near an all-time high, institutional participation in the Indian stock market has come down to a 15-year low. Market participants said the declining inflow from foreign funds due to high share valuations has been offset by a jump in activity by individual investors who are deprived of the way to other high-yield investments.

According to an ET study, the average daily turnover by institutions in the cash market, including foreign portfolio investors (FPIs) and domestic institutional investors (DIIs), has been Rs 25,200 crore per day so far in June, which is about 30% of the total ₹ 79,600 crores on both NSE and BSE. In September 2006, institutional participation as a percentage of daily turnover was 28.63%, rising to a high of 89.21% in May 2015. It was 59.38% in March last year when the individual investor stake began to grow.

FPIs sold stocks worth Rs 8,500 crore between April and June, up from Rs 44,500 crore, after being buyers in the January-March period.

Analysts said the fall in institutional participation could increase the risk of liquidity in Indian markets, especially in mid and small-cap stocks.

A sudden change in market prices with low institutional participation could pose big trouble for mid and small-cap stocks that are currently trading at irrational valuations, said Sanjeev Prasad, co-head of Kotak Institutional Equities. “While large CAP stocks are trading at a reasonable valuation, mid-and-small-cap stocks have rallied sharply with retail money and exit swells in many of them could pose a huge risk in terms of improvement.”

Institutional investors in India include foreign asset managers, domestic mutual funds, insurance, and other vehicles. FPI’s daily average turnover declined from Rs 18,358 crore in the January-May period to Rs 15,513 crore in June. DII’s – mostly mutual funds and insurers – declined from Rs 10,712 crore to Rs 9,628 crore.

Business by individual investors, both retail and high net worth, has grown. The average daily turnover by non-institutional investors in the cash market stood at Rs 54,400 crore in June, up from 70 percent of the total. This includes only direct investment in stocks. Retail investors also invest in equity through mutual funds and equity-related insurance products.

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