VR Logo

Poles Apart

When it comes to pouring money into the Indian equity markets, foreign institutional investors and domestic mutual funds are poles apart

When it comes to pouring money into the Indian equity markets, foreign institutional investors (FIIs) and domestic mutual funds are poles apart.

In 2004, barring January and March, they took opposite investment decisions--while mutual funds were net sellers, FIIs bought heavily. FIIs committed over Rs 38,500 crore to Indian equities, while mutual funds pulled out Rs 917 crore in 2004.

In January, when the equity markets were booming and the Sensex had crossed the 6,000-point level, both FIIs and mutual funds bought stocks worth Rs 3177 and 942 crore, respectively.

Again in March, when the Sensex was down 1.36 per cent, the duo followed each other and turned out to be net buyers. However, overall they followed opposite strategy.

Even in May, when the equity markets had slumped due to the unexpected Parliamentary poll results, they chose to differ--while FIIs pulled out over Rs 3,200 crore, mutual funds judged the slump as temporary and pumped in nearly Rs 1,100 crore. Interestingly, this was the highest monthly investment made by domestic mutual funds in 2004.

Since January 2002 till December 2004, FIIs and mutual funds have adopted opposite strategy in 23 months. In recent times, like foreign institutional investors, mutual funds have become net buyers since the second half of December and have pumped in over Rs 450 crore between December 14 and December 30.

This should ideally strengthen the already booming stock market. However, history suggests that this might not happen.

Consider this: mutual funds were net buyers between November 2003 and January 2004 when equity markets peaked. They also bought heavily in March, April and May 2000 when the tech rally was at its peak.

Markets are at a historic high even now and mutual funds are pouring money too. Who knows if we are at yet another peak that is about to fall?