The domestic institutional investors (DIIs) have turned cautious on equity markets, even as the foreign portfolio investors (FPIs) have been pumping the benchmarks to new heights.

DIIs were sellers in 12 out of the last 13 trading sessions and have cumulatively sold for ₹16,321 crore. On the other hand, FPIs have pumped in ₹33,250 crore, including bulk deals in the same period.

The Nifty rally of over 3,000 points from the March low has given DIIs a big opportunity to book profit amid concern over valuations.

Earnings expectation

Deepak Jasani, Head of Retail Research, HDFC Securities, said the equity investment by domestic institution depends on the perception of the fund manager on the current market valuation and the trend on inflows.

The current rally in the market was on expectation of earnings growth over the next few years and the current earnings season will either confirm or negate the earnings expectations in the near term, he added.

Risk-off sentiments

Ameya Ranadive, Equity Research Analyst, Choice Broking, said the global economic situation can play a significant role in DIIs’ investment decisions and the concern over global economic outlook leads to risk-off sentiments.

With the general election slated for next year, Ranadive said DIIs are concerned over government policies or any regulatory changes leading to volatility and risk in the market.

DIIs booking profits

Vaibhav Shah, Fund Manager, Torus Oro PMS, said FPIs have turned positive over the last few months on the Indian markets on account of better fundamentals, fiscal management, moderating inflation and re-allocation from China.

However, he said currently with the evolving macro-economic scenario, DIIs would be booking some profits and looking for more conviction on underlying fundamentals. 

Rebalancing portfolio

Manish Chowdhury, Head of Research, StoxBox, said with markets reaching all-time highs, there is some selling by DIIs, especially from the balanced mutual funds category, which has been rebalancing the portfolio with equity valuations moving beyond the permissible threshold of the fund mandate.

The effective domestic monetary policy, stable political environment, improving macro-fundamentals and a large headroom for growth in corporate earnings are very unique to India at the current moment and should help in sustaining flows, he said.