Domestic institutional investor (DII) holdings of BSE 500 companies at the end of September were the highest in 12 quarters, indicating retail investors’ confidence in the Indian market.

Promoter holdings in these companies fell to their lowest level in three quarters, while foreign institutional investor (FII) holdings increased slightly from the previous quarter.

Of the BSE 500 companies, 391 published their shareholding patterns and provided comparable data for 20 quarters, indicating that these companies have a combined DII shareholding ratio of 11.14%. This was the highest level since the quarter ended in September 2019.

The promoter’s shareholding ratio was 57.37%, the lowest since the third quarter. Moneycontrol analysis showed that FII holdings stood at 11.18%, a slight increase from the previous quarter.

The proportion of insurance companies has increased significantly, with a shareholding ratio of 5.21%, the highest level since December 2018. The data only reflects an increase in volume. Price increases or decreases are not considered in this study.

Analysts said the small drop in promoters’ holdings was mainly due to their diluting stakes to meet other funding needs. Affected by global volatility, analysts believe that FIIs have taken a knee-jerk approach over the past 12 months. But now, despite aggressive Fed rate hikes, FIIs are making a comeback as they fear missing out on a strong India story, they said.

Deepak Jasani, head of retail research at HDFC Securities, said: “In DII, insurers were aggressively adding to their holdings in Q2FY23. This may be due to attractive valuations following the drop in early July and the deployment of funds they received.”

DII, mostly mutual funds and insurance companies, bought a net of Rs 17,733 crore of Indian equities during the quarter. This is their sixth quarter of being a net buyer of the stock. According to the Association of Mutual Funds of India, systematic investment plan (SIP) inflows exceeded Rs 37,000 crore in the September quarter.

On the other hand, FIIs injected $5.81 billion into Indian equities in the September quarter, the highest level since the quarter ended in March 2021. For the quarter, the Sensex and Nifty rose 8.3%, while the BSE 500 rose nearly 11%.
Of the 391 BSE 500 companies, DII increased its holdings in 253 companies and reduced its holdings in 138 companies.

“A clear trend in the Indian capital market for over two years now is the increasing financialisation of savings. An increasing amount of money flows into stocks through direct retail and DII. An interesting market feature now is the tug- War between FII and DII, with the latter calling the shots, unlike in the past.

“From fiscal 2022 to October 31, FIIs sold stakes worth Rs 1,68,797 crore, while DIIs bought stakes worth Rs 2,57,865 crores. This explains the growing holdings of DIIs. This tug-of-war is lost because they have been sellers of bank stocks doing well. The growing influence of DII is a trend that could build momentum,” Dr VK Vijayakumar, chief investment strategist at Geojit Financial Services.