DII intervention saved equities from another 'Black Friday'

DIIs asked to become 'buyers' in the equity market

The S&P BSE Sensex on Friday plummeted a little over 1,000 points intra-day as Brexit spooked world markets. However, the Sensex recovered a good 500 points to close the day at 26,398.

Foreign institutional investors (FIIs), sellers through the day, contributed in a major way to the decline. However, a senior executive from a large domestic brokerage, on condition of anonymity, revealed that just as the Sensex was about to see steeper falls, a few large domestic brokerages and fund houses (domestic institutional investors or DIIs) received phone calls from officers in the finance ministry. According to him, the officer asked DIIs to turn ‘buyers’ in the equity market. “This includes large insurance players as well,” he said.

Another leading broker added: “Initially, everyone was taken by surprise (by Brexit). So, most domestic players were watching the markets from the sidelines as they were unsure about the direction. But, after calls from the ministry, they entered the market aggressively to stop the fall.”

Another source said the call was timely and came to the rescue of even the broking community. “Most brokers got their position on Brexit wrong,” he said. Interestingly, a fund manager confessed that he decided to take an early morning flight out of Mumbai on Friday after studying various reports on pound positions, FTSE and Dow closing, futures and options positions in major global markets and Twitter handles of prominent players before leaving. “When I realised that Brexit had happened, there were sudden concerns like that of 2008. I expected a big sell-off,” he said.

Thankfully, the intervention of DIIs prevented a ‘Black Friday’. Trade data on BSE’s website confirmed DII participation (or buying) to the extent of Rs 115 crore, while foreign investors were net sellers of stocks worth Rs 629 crore.