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Coronavirus impact: FPIs on a selling spree, mutual funds turn net buyers

The equity markets suffered extreme panic selling last week, where the key BSE barometer plunged 3,473.14 points

twitter-logoNiti Kiran | March 16, 2020 | Updated 21:38 IST
Coronavirus impact: FPIs on a selling spree, mutual funds turn net buyers

Covid-19 scare continues to send jitters across the stock market as the Sensex tumbled 2,713 points or nearly 8 per cent to end the session at 31,390 levels on Monday, the lowest since October 03, 2017. The equity markets suffered extreme panic selling last week, where the key BSE barometer plunged 3,473.14 points in total.

Is it a market with no buyers? Not really. Be it the day (March 12) when the index crashed around 3,000 points registering its worst one-day fall in the history or the period since the country reported its first confirmed case of coronavirus on January 30 till what could be termed as black Thursday, the domestic BSE Sensex lost over 8,000 points. During these 30 trading days, the index gained only on 10 occasions.

This rout was entirely triggered by a massive sell-off by the foreign institutional investors (FIIs) who cumulatively pulled out Rs 21, 970 crore from stock markets during that period. On March 12, the FIIs sold equities worth Rs 3,484 crore. Domestic mutual funds on the other hand were net sellers only 11 times during this period and have collectively invested Rs 17,632.7 crore, including net investments of around Rs 915 crore on March 12. These domestic institutional have approximately invested Rs 8,538 crore in Indian equities in March (upto March 12). 

According to Dr. Joseph Thomas, Head of Research, Emkay Wealth Management, "The mutual funds get regular inflows into their equity funds through the SIP mode. This amount is close to Rs 8500 crore per month. This inflow keeps the equity flows robust for funds, despite the fact that FIIs have been taking money out of the domestic markets. It may be pointed out here that the domestic investors too have become important in the whole scheme of things with domestic investors, quite often, compensating for any fall in FII volumes. This is a clear trend that is visible for the last one year. The FIIs continue to pull out money from the domestic market and it is expected that it may continue for some more time as it is a response to the adverse implications which the epidemic has for economic growth."

He adds that it may cause severe short-term implications and should not be underestimated.

The markets may reach the levels where the intrinsic value of the assets could be higher than the prices at which they are available. That is the level where valuations may stabilise. "It is too early to make any judgement on the levels at which it could stabilise under the current circumstances. The best way to invest is to approach the market in a phased manner, where one makes investments in measured phases as against a lumpsum amount or one-time investment," he adds.

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