DII vs FII | DII Holdings at Record High (in Q4 FY20)

DII vs FII Holdings in Indian Equities

Introduction

DII vs FII has always been a favourite case study while analyzing Institutional Activity in Indian Equity Markets. Lets do a comparative analysis of DII vs FII holdings in Indian Equities. Also, lets discuss how the Indian Equity Markets’ dependency on FII is changing slowly over the last one decade.

DII vs FII | A Comparative Analysis

What Are DII & FII?

• DIIs – Domestic Institutional Investors
  • Domestic Institutional Investors ie. DII refers to the Indian institutional investors who are investing in the Indian financial markets.
  • There are 4 key Domestic Institutional Investors :
    1. Indian Mutual Funds
    2. Indian Insurance Companies
    3. Local Pension Funds like National Pension Scheme (NPS), PPF, EPF
    4. Banking & Financial Institutions
• FIIs – Foreign Institutional Investors
  • While Foreign Institutional Investors ie. FII refers to investors that are from other countries and that are investing in the Indian financial market.

DII Equity Holdings at Record High (in Q4 FY20)

The latest institutional holdings data reflects that the impact of the heavy outflows of foreign institutional investors (FIIs) has partially been offset by the sustained flow from the domestic institutional investors (DIIs).

• Historically, whenever there was heavy sell-offs by FII, Indian Indices has given sharp declines due to high dependency on FII investments in Indian Equity Markets.
• Key Events of Heavy FII Outflows from Indian Equities :
  • 2008 – Global Financial Crisis
  • 2015 – Euro Crisis
  • March 2020 – Coronavirus Outbreak
• However, as we can see in the above graph, over the long-term trend, DIIs have always been supporting Indian stock market levels whenever there is strong FII outflows.
• Thus, a supportive DII inflows has always been there to offset FII outflows, minimizing its adverse impacts on the Indian Equity Markets.
• Since 2008, there have been 17 instances when FPIs sold more than Rs.10,000 Cr in a month. During 10 of such instances, DIIs invested more funds than what FPIs sold.
• March quarter has witnessed the same thing, when there was a massive sell-offs of Rs.65,817 Cr from FIIs in March 2020. DII has made a high inflows of Rs.55,595 Cr in March month, reducing the overall negative impact of FII sell-offs.
• As a result, DIIs’ holding in Indian equities rose to a record high of 14.8% in March 2020 quarter.
• It means, in the Total Equity Market Capitalization of Rs.133 Lakh Crore of BSE 500, DII are holding 14.8% around Rs.19.7 Lakh Cr in March 2020 quarter.

Key Drivers of DII’s Record High Equity Holdings in March 2020 Quarter

• In March 2020, DIIs cumulatively invested almost Rs.55,595 Cr in Indian equities, the highest ever investment in a month.
• The individual contribution in total DII inflows is :
  1. Local Pension Funds : Rs.33,706 Cr
  2. Indian Insurance Companies : Rs.20,000 Cr
  3. Indian Mutual Funds : Rs.11,722 Cr
     • The domestic mutual funds benefited from the continued flow via systematic investment plans (SIP). Net inflows in the equity schemes touched a 12-month high of Rs.11,722 Cr in March
• Since the beginning of the year, the Assets under management (AUM) of local pension funds and banks treasury grew by 20% and 47% respectively. Thus, these DIIs recorded such a robust growth in their AUM, when the total institutional AUM fell by 16.5% (since January 2020).

DII vs FII – Comparative Analysis

• Asset under Management (AUM) in April 2020
  • DII : Rs.20.4 Lakh Cr
  • FII : Rs.24.4 Lakh Cr
• % Fall in AUM since January 2020
  • DII : -10%
  • FII : -21.3%
• Inflows/Outflows YTD
  • DII : DIIs have invested around Rs.72,000 Cr YTD (Year to Date, since Jan-20)
  • FII : While FIIs have pulled out Rs.39,000 Cr from Indian Equities YTD
• FII to DII Ownership Ratio
  • The FII to DII Ownership Ratio = (FII Equity Holdings / DII Equity Holdings)
  • This ratio of FII to DII ownership dropped to 1.2 in April 2020 from the peak of 3.8 in April 2015.
  • There may be 2 reasons for the drop in this FII to DII ratio :
    1. Comparatively Heavy Sell-off by FIIs than their new inflows
    2. Robust Growth in DII inflows in to Indian Equities
  • It indicates the how vigorously DII have been investing in Indian Equities as compared to the FII.
• Equity Holdings
  • DII
    • Domestic Institutional Investors equity holding has reached to nearly one-third of the total free-float market capitalisation of the BSE-500 index.
    • DIIs increased their stake by more than 1% in 106 companies and cut stake in 42 companies in the BSE 500 index during the March 2020 quarter.
    • The prominent large companies where DIIs raised stakes are Power Grid Corporation, Eicher Motors, NTPC, Coal India and ONGC by putting more than Rs.15,000 Cr in the March 2020 quarter.
  • FII
    • Foreign Institutional Investors equity holding fell by 0.70% to 21.5% of the total market capitalization in the BSE 500 index.
    • FII trimmed stake in 27 companies of the Nifty 50.