When locals lead

Can domestic institutional buying trigger or sustain a stock market rally in 2016?

Soumik Kar

Foreign institutional flows into the Indian equity market in CY15 have been at its lowest level in four years, but domestic institutional investors bought Rs.65,000 crore worth of equities during the year, turning net buyers after three years of back-to-back selling. What has turned these serial sellers into serious buyers?

Local fund managers cite ‘attractive valuation’ as the primary reason for their renewed interest. “While the valuation in the mid-cap space has run ahead of earning estimates due to the sustained rally starting from 2014, the valuation in large-caps has turned reasonable,” says Sampath Reddy, CIO at Bajaj Allianz Life Insurance. Since CY14, the 30-share Sensex is up 21%, while the BSE Mid-Cap Index is up 64%. The fact is that the local buying spree has been made possible by strong inflows into equity mutual funds this year — in 2015 till November equity mutu


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