Domestic Institutional Investors (DIIs) have sold an estimated $3.5 billion worth of equities, in contrast to their foreign counterparts who have been pumping money as if there is no tomorrow. They are averse to financials while FIIs are heavily betting on exactly those

Yesterday, we had written about how FII ownership in Indian equities has reached an all-time high (http://moneylife.in/article/fii-holdings-in-indian-equities-at-an-all-time-high/31227.html ), and how the Indian stock market had reacted with respect to influx of foreign money pouring in. Equally interesting is the action of domestic institutional investors (DIIs) who remain cautious. DIIs have sold an estimated $3.5 billion worth of equities and hold only 12% of the BSE100 stocks in the third quarter, when compared to over 19% held by FIIs.
 

Interestingly, FIIs and DIIs have taken opposing stance on the same sector—banking and financial services. FIIs are bullish while DIIs are bearish.  The top 10 FII underweight list in many ways mirrors the top 10 overweights list of domestic mutual funds (DMFs). In fact, while FIIs have kept ITC, L&T, State Bank of India, Tata Steel and NTPC as underweight while the DIIs have kept these stock in the overweight category. Similarly, while FIIs are bullish on HDFC, Infosys, Axis Bank, Kotak Mahindra Bank and Sun Pharma, DIIs have kept these stocks in the underweight category, reflecting their own investment strategy.
 

FII underweight

DII overweight

DIIs have continued to be big sellers in January and February. They continue to be overweight on consumer, capital goods and energy, while remain underweight on banking and software. The top stocks bought by DIIs were NMDC, Reliance Power and Cairn India.
 

DIIs have been reducing exposure to domestic cyclicals including autos (which FIIs are bullish on). They have also been switching out of defensives and putting more money into materials.
 

On other specific stocks, FIIs have sold Cairn India while DIIs have lapped it up. Ditto for United Phosphorus.

Last year, DIIs were net sellers for nine months out of 12 while the Sensex has moved up roughly 25%. As the market moved up, they’ve been taking advantage of the situation by cashing out, probably because they are facing redemptions as new money into mutual funds and insurance companies have dried up. Some of the DII dominant-held sectors, according to Edelweiss, as of the third quarter of 2013 fiscal are: 23% in capital goods, 17.6% in consumer goods (down from 18.1%), 11.9% in autos (down from 13%). Interestingly, DIIs have sold as much as Rs16,207.32 crore in the month of January 2013 alone, which is nearly the same amount that DIIs have sold in the third quarter of fiscal 2013 combined. On the other hand, FIIs have bought over Rs19,000 crore in January 2013 alone. FIIs have been net sellers in just two months out of 12 months last year, helped by quantitative easing of central bankers which found their way to Indian shores.
 

According to Edelweiss, of all the money that FIIs poured in the third quarter, a whopping 41% was taken up by financial sector companies, followed by the auto sector (11%). This is probably in gleeful anticipation of interest rate cuts, without realizing that the RBI is not like other central banks.