Mumbai: Domestic institutional investors (DIIs) poured a net of ₹ 15,770 crore into stocks in August, their highest monthly investment in more than six years, as stocks traded at attractive valuations following a sharp sell-off by foreign portfolio investors in India on worries that China’s problems will hurt the global economy.

DIIs have invested the most since January 2008 so far this month, with mutual funds (MFs) alone pumping in a net of ₹ 9,489.8 crore, according to data from the National Stock Exchange (NSE) and markets regulator Securities and Exchange Board of India (Sebi). The majority of the rest of the ₹ 6,280.03 crore came from insurance companies, the data showed.

India’s largest money manager, Life Insurance Corp. of India (LIC), and MFs have swooped in to buy shares after last week’s global stock market rout sparked by concerns on China’s economy. The slump in Indian stocks may have been more pronounced if not for the buying by local funds and insurance companies, experts said.

“Markets have come down; so people are deploying cash as valuations look reasonable," said Sampath Reddy, chief investment officer, Bajaj Allianz Life Insurance Co. Ltd. “We are also investing. But I guess a lot seems to have come from LIC."

DIIs have bought a net of ₹ 42,679.33 crore of Indian stocks year to date, and are set to end the year with the highest annual inflow since 2008. On the other hand, foreign portfolio investors have sold a net of $2.5 billion of the asset class so far in August. If the bearish sentiment continues on Monday, the last day of the month, August will witness the highest monthly sale by foreign portfolio investors in nearly four years. They are still net buyers to the tune of $4.5 billion in 2015.

State-run LIC, the country’s largest insurer, has been actively buying stocks ever since the carnage in the world equities on Monday, the head of an investment management arm of a brokerage firm said, on the condition of anonymity. An email sent to LIC remained unanswered.

With corporate earnings continuing to disappoint investors, stock valuations looked stretched before the sell-off last week. They, however, seem to have turned more attractive, after the recent decline.

BSE’s 30-share Sensex is trading at 16.06 times one-year forward price-to-earnings, and has moved close to its five-year average of 15.58 times, data from Bloomberg showed.

“We find valuations of the Indian market more reasonable post the recent sharp correction. Lower valuations and weaker rupee post the recent market sell-off can provide for meaningful returns (15-18%) over the next 12 months," Kotak institutional equities, an arm of Kotak Securities Ltd, said in a note on Friday.

The BSE’s benchmark Sensex fell nearly 6% on 24 August, as a freefall in Chinese markets spooked world equities, triggering a flight to safety. Indian markets did stage a small recovery in the rest of the week, but the benchmark Sensex still shed 3.6% for the week. It is down 0.9% year to date.

“We see increasing likelihood of a rate cut at the next policy meeting. We continue to like private financials and see good value in automobile names," Kotak analysts Sanjeev Prasad, Akhilesh Tilotia and Sunita Baldawa said in the note.

Kotak analysts believe earnings downgrades of Indian companies may be bottoming and their revised weaker currency assumptions will, in fact, result in a modest increase in earnings estimates. MFs continued to see robust inflows into their schemes as retail investors raised their bets after the stocks rout.

“I think this (MFs’ inflows in equities) is reflecting the fresh inflows that are coming to MFs, and getting deployed in the market. In the last few days, flows have been decent. It seems the investors continue to maintain their confidence over the long-term potential of Indian equities," said Navneet Munot, chief investment officer (CIO) of SBI Mutual Fund.

Other MFs agree.

“We are witnessing steady inflows across our products, particularly in our asset allocation and hybrid products," said S. Naren, chief investment officer at ICICI Prudential Mutual Fund. “We remain invested in the markets across our products except for categories like dynamic and asset allocation funds which are mandated to hold cash when markets rise. Given the recent correction, the cash allocation in such funds gave us the opportunity to invest in equities at reasonable valuations," added Naren.

The Indian MF industry’s assets under management surged to a new record in July, surpassing the ₹ 13 trillion mark, Crisil Research said in a 6 August note.

Assets under management rose 12.2%, or ₹ 1.44 trillion (the highest absolute gain in over four years), to ₹ 13.17 trillion, according to the latest numbers by the Association of Mutual Funds in India.

Data from Capitaline suggested that DIIs held a total of 8.09% in BSE 500 shares at the end of the June quarter, up from 7.86% in the preceding three months ended 31 March, and 6.66% at the end of June 2014.

DIIs were most heavily invested in consumer packaged goods companies with their holdings in this space among BSE 500 stocks at 17.8%. Following next are private banks and state-owned banks where they hold 15.8% and 14.2%, respectively.

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