By Ruma Dubey
Foreign Financial Institutions (FIIs) and Domestic Institutional Investors (DIIs) always work in the exact opposite direction – when the FIIs buy, the DIIs sell and vice versa.
Take a look at this – in August, FIIs were net sellers to the tune of almost Rs.16,000 crore while DIIs were net buyers at over Rs.16,000 crore. In the current month, till 12th September, yesterday, FIIs remained net sellers at Rs.5900 crore while DIIs were buyers at Rs.4100 crore. 90% of the times, they work in divergent directions and it is only very rare, two to three times in a year that we see both working in tandem.
But if we really do need to probe into the nitty-gritties of things, then we can look into what they are buying and selling, which could give us some understanding into their trading psyche or maybe their perception about the sectors.
More than stocks, it is more important to look at the sectors which the FIIs prefer. As per a report put out by Bloomberg, the biggest chunk of FII money is going into banks, followed by financial services sector which includes NBFCs, housing finance and microfinance companies. The third most favoured sector is Oil & Gas; telecom comes in at fourth slot. Other favoured sectors are healthcare, construction materials, realty, capital goods and textiles and apparels.
And FIIs have turned sellers in pharmaceuticals, biotech, followed by IT or mainly software service companies. Also coming under the selling axe is the chemicals and petrochemicals sector, media, marine ports, transportation, coal, household products, food beverages and tobacco and utilities.
DIIs, many say are not really selling specific sector or stock. They are profit booking every time FII buying steps up. As one analyst explained, FIIs have the liquidity and the bandwidth to buy expensive stocks which an Indian investor at our interest rates will not find it so lucrative. Thus DIIs use the opportunity to sell as they know that FIIs have the strength to move the market while DIIs, when needed can only lend support.
DIIs have been paring their stakes in cyclicals, mainly auto and are putting more money into materials rather than defensive stocks. And a comparison of the top 10 FII underweight list and the top 10 overweight list of DIIs shows that FIIs are buying stocks which the DIIs are selling and vice versa.
Remember one big change has happened and this could change the entire dynamics of a market which is FII led – the number of people investing through SIPs is leaping. Currently, mutual funds have some 1.52 crore SIP accounts and AMFI reported that every month, on an average in FY18, mutual funds added about 8.23 lakh SIP accounts and each SIP account’s average size is around Rs.3250. With more money expected to come into SIP, even if FIIs sell, today the DIIs can hold fort.
Do we follow the FIIs or DIIs? You and they are in two completely different situations and would be foolish to merely do what they do. FIIs/DIIs have peer pressures to follow their herd but we do not. Warren Buffett has often talked about the “institutional imperative” where like a herd, investors follow each other, even if they know it is not logical as they do not want to “miss out”; not having the guts to take contrarian calls. So do your own study, read balance sheets, track stock prices and history and then invest. If this is too much work, like what India is turning to, invest through SIPs in a sound company. That’s the best way ahead – your small money but big institutional buying/selling.