Indian Investors Exit – FII Holding at Highest Level

Indian Investors ExitKey Indian Benchmark Indices are up whopping 30% in the last 13 Months. Foreign Institutional Investors have bought total Equity of US$31 billion since then and their ownership of Indian equities has reached all-time highs. In contrast, domestic institutional flows have been negative (US$15 billion).

We can ascertain that one of the pockets where Domestic Investors have redeemed is the Insurance Related ULIPs to the tune of $3Bn in Nov-Dec 2012.. Investors were struck in these non yielding instruments sold by private Indian insurance companies which was a big day time loot and the Indian Government did little while complaints against Insurance Sector Piled up. With rising market, the average Indians who had invested in ULIPs, weapons of destruction of wealth opted for redemption to preserve the little corpus he is left with.

Domestic flows are approaching their worst in history indicating that retail sentiment towards equity may be at its nadir. The behavioral factor in determining flows is a combination of real (YoY Sensex minus WPI inflation rate), absolute (YoY Sensex) and relative returns (Sensex vs. Gold). Expectedly, returns lead flows by several months. [Herd Mentality of Indian Investors to Chase after it has risen and not while it has bottomed out]

As the trailing equity return improves and real rates rise, households will move savings into equities in the coming months. However, if you have been a reader of our Articles, I’m sure you would have reaped the benefits of this Rally as we recommended Investments when the Senesex had bottomed out