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MOSL: INDIA STRATEGY-The ‘In And Out’ of Institutional Flows

India Strategy: The ‘In And Out’ of Institutional Flows

 

Institutional ownership of Indian equities has gone up by 900bp in a decade to ~35%. However, the color of institutional flows has transformed distinctly of late, with domestic institutional investor (DII) flow significantly outpacing foreign institutional investor (FII) flows over the last five years. Our analysis of the last 15 years also suggests a strong positive correlation of market returns with FII flows. In this note, we discuss in detail various aspects of institutional flows and the relative sectoral positioning.

 

Contrasting trends in DII and FII flows over the last decade

• Contrasting trends can be noticed in the dynamics of FII and DII flows in India with a large part of the period under study being dominated by FII flows. While FII flows tapered off post CY14, only then did DII flows pick up meaningfully, especially Mutual Fund (MF) inflows. If we divide the decade (CY09-19) into two blocks, FII flows dominated during CY09-14 with inflows of USD107b v/s DII outflows of USD22b; DII flows dominated during CY15-19 YTD with inflows of USD51b while FII inflows were a tepid USD16b.
• FIIs: Over the last 27 years beginning CY93, FIIs have invested USD178b in the Indian Equity markets. The six-year period between CY09-14 was the peak with cumulative FII inflows of USD107b. After peaking in CY14, FII inflows since then have tapered off to a cumulative USD9.3b over CY15-18. CY19 has seen a revival with CY19 YTD flows at USD6.5b, despite an outflow of USD4.9b since July'19.
• DIIs: Data on DII flows was made available in CY06; since then, DIIs have invested USD55b in the Indian markets. While USD59.6b came in from Indian Mutual Funds, there were outflows of USD4.6b from other domestic funds - ex MFs. A large part of the USD55b DII flows - USD46.4b - came over the last five years (CY14-19 YTD).