FPIs become aggressive sellers when markets fall; ₹17,083 crore selloff in Indian equities: When will buying resume?

Foreign portfolio investors (FPIs) have become aggressive buyers in Indian markets this month following the latest slide in equities due to electoral volatility and dovish stance by global central banks. Last month, FPIs turned net sellers in Indian markets after reducing their buying pace with the start of the new financial year 2024-25 (FY25).

FPI invested Indian equities are valued at Rs 17,083 crore and total outflows Taking into account debt, hybrid, debt-VRR and equity, it stood at Rs 16,797 crore as of May 10, according to National Securities Depository Limited (NSDL) data. total debt outflow is at Rs 1,602 crore so far this month.

Analysts said foreign investors will remain sellers in Indian markets given interest rate cuts, inflation concerns, softening of corporate earnings and delays in premium valuations. The volatility index 'India VIX' has increased in the last few sessions due to selling pressure on most of the indices.

Also read: FIIs sell Rs 22,858 crore in 6 sessions: VIX will trouble Fed – 5 major reasons for bulk selling in Indian equities

Fund flows by FII and DII

Foreign institutional investors (FIIs) are selling in Indian markets as total exits approach Rs 25,000 crore in May 2024. FII sold ₹24,975.5 crore within the first seven market sessions so far in May 2024. Domestic institutional investors (DIIs) were net buyers for all sessions, with total investments According to stock exchange data, Rs 19,410 crore.

Analysts said high-quality largecaps have now become weak due to bulk selling by FIIs. “There has been aggressive selling by FPIs in May…the selling by FIIs in the cash market is much higher. 24,975 crores. The divergence in institutional activity is becoming apparent this month. “FIIs have become consistent sellers and DIIs have become consistent buyers across all trading days this month,” analysts at Geojit Financial Services said.

FIIs, FPIs sell Indian stocks: Key reasons behind bulk selling

According to analysts, with the data showing a sharp decline in the broader market, it appears that HNIs and retail investors have booked some profits and are in a wait-and-see mode, perhaps responding to noise related to uncertainty about the election results. Have been.

Apart from uncertainty over election results and the impact of higher US bond yields, there is another major reason behind bulk selling by FIIs. According to market experts, this is the current outperformance recorded by the Chinese and Hong Kong markets.

“An important thing to understand is that FIIs are selling not because of election-related concerns but because India is performing poorly (Nifty is down 2.06 per cent in the last one month) while China and Hong Kong are doing better. (Shanghai Composite and Hang Seng have gained 3.96 per cent and 10.93 per cent respectively in the last one month), said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Market analysts say the US Federal Reserve's decision signals a much smaller rate cut than expected earlier this year. The inflation rate has become stubborn at the lower level. However, the latest jobs data in the US indicates a slowing economy and hence, a rate cut may be needed.

When will FPI flows resume?

The FPI strategy is to sell to India which is expensive and buy to China which is much cheaper, mainly through Hong Kong. The price to earnings (PE) ratio in India is more than double that of Hong Kong. Chinese and Hong Kong markets are cheap with PE ratios of around 10 while India is expensive with double the PE of these markets.

“As long as this 'sell India, buy China' trade continues, FII selling will impact the market. The situation may change dramatically once there is clarity on the election results. “If the election results are favorable from the market perspective, then aggressive buying by DIIs, retail and HNIs could push the markets higher,” said Dr VK Vijayakumar.

Also read: US Fed to keep rates at 23-year high until inflation eases, pace of balance sheet runoff slows: 5 key highlights

FPI activity in Indian markets

In the first week of May, FPIs snapped their April selling streak and became net buyers in Indian equities, however, selling in the debt market continued. FPI sold Another Rs 8,671 crore in Indian equities last month Rs 10,949 crore in debt markets on higher US bond yields. However, he pumped Rs 35,098 crore inflows into Indian equities during March 2024 – the highest inflows recorded in the first three months of 2024. Despite higher US bond yields, FPI outflows declined initially in February 2024 until they were net buyers by the end of the month.

Inflows into Indian equities remained steady Investments in debt market increased by Rs 1,539 crore in February 2024 Rs 22,419 crore during the month Purchases worth Rs 19,836 crore were made in January. The inclusion of government bonds in the JPMorgan and Bloomberg debt indices had particularly triggered an inflow of foreign funds into the debt markets. FPIs became massive sellers in January 2024, breaking their buying sequence, as investments witnessed a sharp rise in December 2023 after reversing their three-month selling sequence in November 2023.

However, flows accelerated in December on strong global cues after the US Federal Reserve signaled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a decline in US bond yields and an influx of foreign funds into emerging markets. Like India.

FPI purchases for the entire calendar year 2023 Indian equities have total inflows of Rs 1.71 lakh crore and According to NSDL data, considering debt, hybrid, debt-VRR and equity, Rs 2.37 lakh crore. Net investment of FPI in Indian debt market is 2.5 percent 68,663 crore during 2023.

Disclaimer: The views and recommendations given above are those of individual analysts or broking companies and not of Mint. We advise investors to check with certified experts before taking any investment decision.

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