Changing market dynamics and pace of regulatory developments have made retail investors a little jittery. Continuous selling by Foreign Institutional Investors (FII), weakening Rupee, Reserve Bank of India (RBI’s) stubbornness over rate cut, cautious stance of Domestic Institutional Investors (DIIs), stimulus package at China, the whispers of global economic slowdown, impending US Election, uncertainty over Fed rate cut cycle etc. have made investment horizon a bit hazy. The mutual fund investors are feeling confused and a bit betrayed. They feel that their investments are being used by DIIs to bail out FIIs. Let us examine all these in detail.
Who is smarter? FIIs or DIIs? The feeling of betrayal: This is a simple question but difficult to answer. In an overstretched market with high valuations, when FIIs are booking profit, our DIIs are on buying spree. Why are the mutual fund companies buying shares when FIIs are selling them due to high valuation? Is there an understanding between FII and DII? Are DIIs using retail investors hard earned money to facilitate grand exit to FIIs? Anything can happen. In Indian financial market where incidents of frontrunning, pump and dump, flash trade, fake order book, balance sheet manipulation and insider trading are rampant, the possibility of using retail investors money for bailing out FIIs can’t be ruled out. Some mutual fund investors get nervous breakdown when Index refuses to fall despite heavy selling by FIIs. There is a feeling of betrayal. There are several instances of mutual fund schemes with negative return even in booming market. There is no rule to penalize a laggard fund manager. There is no regulation to sue a licensed investment advisor or technical analyst with stop-loss sickness. But there is light beyond the tunnel. Our smart DIIs have proved winners many a times. The power of cash they hold has made them wiser than ever before. Over the years, they have learnt how to turn the game around.
Piling cash level – boon or bane?: The 67- lakh crore mutual fund industry is sitting at cash pile of almost Rs 2 lakh Crore. This is huge amount and can take the Nifty Index by 2000 points in a matter of time. In October 2024 only, FIIs have sold shares worth Rs. 97000 Crore approx. But Nifty Index has retraced by just 1500 Points. FIIs are selling and DIIs are sitting on cash. This is a new phenomenon. DIIs are accumulating mid-caps which have shed their flab in ongoing correction. FIIs can’t sell beyond a certain threshold due to country wise allocation of investment. Therefore, FIIs selling time is the best time to accumulate stocks. The moment, FIIs long position in Index goes below 20 percent, PCR drops to the level of 0.40 and momentum indicators signify sentiment reversal, the DIIs start pouring short term money into Index Stocks. The cash pile of Rs 2 lakh Crore is meant for such occasions. Despite all the negativity, one must trust mutual fund managers with track record of excellent delivery.
Is the market poised to fall more? Indian market is in long term bull run. Short term jitters are natural. Nobody hates rain due to lightening associated with it. The Index has given 10 times return is last fifteen years. Even short-term outlook is promising. The open interest concentration at long dated option contracts, market retracement ratios and other technical parameters indicate that Nifty may refuse to go below 23800 in ongoing correction. If Nifty halts at 23800 and takes a U-turn, it may rise to the level of 27000 by March 2025.
The domestic fund managers well known for their stock picking skills and long-term bets at front liners have improved upon their short-term strategy. As a domestic investor, you would be proud to learn that many a times our DIIs have been found booking profits at the expense of FIIs.
