Domestic funds net buyers in volatile market

Foreign institutional investors (FIIs) have used the volatile market to cash out even as domestic institutions have exploited the fall to make fresh purchases.

While FIIs have sold in excess of Rs 4,000 crore in the last seven trading sessions, domestic institutional investors (DIIs) have been net buyers in the cash market to the tune of Rs 3,062.32 crore in the same period.

"The correlation between domestic institutional investors and foreign institutional investors is negative, that is when one is buying the other is selling. Mutual funds are waiting for the market to dip so they can pick up stocks," said Sameer Kamdar, country head-mutual funds, Mata Securities.

After the past seven trading sessions, FIIs have ended up net sellers since the beginning of July. Though Sebi numbers show high investment in 2007, that is largely on account of primary market investments.

"In a volatile market, we have followed a strategy of picking up stocks with good earnings visibility in the next 2-3 years," said Sanjay Dongre, fund manager, UTI Mutual Fund. "The market will continue to be volatile for the next 2-3 months. The end of this calendar year will produce some visibility on FY09 earnings."

According to Sebi, mutual funds have invested in excess of Rs 1,300 crore in the equity segment and Rs 3,920 crore in the debt segment in the past seven trading sessions.

In fact, mutual funds are not just buying stocks, but they are also launching schemes to capitalise on the market volatility. HSBC Mutual Funds's Dynamic Fund is a case in point.

Dynamic equity funds take a call on the market situation and can move entirely into debt instruments, if the view on equity markets is negative.

"In a volatile market, funds could easily earn the carry on fixed income. Thus, we would expect more such funds to enter the market at this stage," Kamdar said. At present, ICICI Prudential Dynamic is the only such fund in the market.

But UTI's Dongre thinks otherwise. "You cannot design a product to take care of the market risk. Even if there is no volatility, buying at lower levels is a sound strategy,'' he said.