FIIs on a shopping spree, MFs liquidate

Funds net sellers of Rs 700 cr between Jan and May.

Domestic mutual funds have remained sellers in the five months to May, quite unlike foreign institutional investors (FIIs), which have been big buyers.

While mutual funds liquidated stocks worth Rs 700 crore between January and May this year, FIIs have continued to shop for Indian equities, the tab at Rs 17,267 crore, a 73 per cent rise over the amount they invested in the same period last year.

Mutual funds seemed to be quite bullish on the market last year, putting in Rs 13,811 crore in the first five months. This year, however, despite having seen a fairly strong increase in their corpuses "" approximately Rs 7,000 crore between January and April "" their appetite for stocks has shrunk.

Says Anup Maheshwari, head of equities, DSP Merrill Lynch, "It appears that cash levels are up because funds have been apprehensive of a correction in the market for some time. Moreover, several funds now prefer to buy futures because that market is fairly liquid."

Adds Mihir Vora, head, equities, at HSBC, "Some funds were not so positive on the market earlier in the year and have been sitting on cash, waiting for a correction. Besides, the market has become increasingly stock specific and so rather than being fully invested, funds are trying to pick the right stocks."

Interestingly, FII inflows into the Indian market "" which now has a market capitalisation of Rs 1 trillion""are strong despite the fact that Asian funds have been pulling out money from India.

Against an inflow of $1.6 billion into India from dedicated Asian equity funds between January and May 2006, there has been an outflow of $1.2 billion this year, according to EPFR Global.

In fact, Asian funds have been underweight on India for several months now and this dropped to a five-month low in May. Around 26 per cent of the regional funds have a 10 per cent plus country weight for India, compared with 19 per cent a year back.

According to a strategist at a leading foreign brokerage, the inflows into India can be sourced to a host of India dedicated funds and some global funds.

Says he, "Apart from some India funds launched in the US, money has come in from several funds in West Asia. Besides, a few global funds have increased their allocations to India."