The caution of foreign portfolio investors (FPIs) in the Indian equity market has been unwavering so far this year and so far the month of May has followed a similar pattern. In the current month, so far FPIs have withdrawn more than 35,000 from the equity market, while the total outflow in the year is massive 1.62 lakh crores.
According to NSDL data, FPIs in the equity market have taken a total of Rs. 35,137 crore so far till May 20. This is more than twice the outflow of 17,144 crore was registered in the entire month of April.
As for the FPI selling spree in May, Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said, “The key factor behind the relentless FPI sell-off is dollar appreciation which has taken the dollar index above 103. Also, India It is a major emerging market where FPIs are sitting on huge profits and the market is too liquid to absorb FPI sales.
“As the parent market, US, is weak and dollar is strengthening, FPIs are likely to continue selling in the near future,” Vijayakumar said.
Equity market appetite has been volatile, both on the domestic and global front. A series of events and factors have eroded investor confidence in the market, with the Russo-Ukraine War and inflationary pressures emerging as a major spoiler.
year to date, FPI took out a lot 1,62,299 crore from the Indian equity market. The biggest selling was in March when the outflow was on 41,123 crore. In the first five months of 2022, FPI selling bias slowed in April, but picked up again in May as fears of an economic recovery from the pandemic hit inflation, interest rate hikes, supply chain constraints and uncertainties around Russia. The middle seemed slow. Ukraine conflict. Also, a possible slowdown in the coming times has added to the crisis.
In January, FPI was on outflow 33,303 crore in the stock market, while investors pulled out in February 35,592 crore.
So far in 2022, the Sensex and Nifty 50 have lost around 8%.
Looking at positive global cues, Indian markets closed another volatile trading week on Friday with a rally of relief. The Sensex closed at 54,326.39, up 1534.16 points or 2.91%. Nifty 50 closed at 16,266.15, up 456.75 points or 2.89%.
Vinod Nair, Head of Research, Geojit Financial Services, said, “The market displayed a confident but calm rally throughout the day, supported by strong global markets, particularly the Asian market. The Chinese Central Bank has posted a move to support growth. Key interest rate cut, injected. Optimism in emerging markets. With concerns over an economic slowdown and rate hikes across the globe, investors will continue to invest with caution. Value stocks should outperform during this consolidation period “
Meanwhile, Vijayakumar said, “The extreme volatility in the market is largely due to two reasons. One, the market has waived severe monetary tightening by the Fed, which is likely to drive the fed funds rate to around 3% in 2023. Second, the market has not completely discounted the possibility of the US economy slipping into recession in 2023. Till there is clarity on the second issue, the ‘risk-off, risk-on mode’ in the market is likely to continue in the near term. It may take a few weeks for the markets to stabilize.”
“It is important to appreciate the fact that the key feature of this market is bearish in the short term. The Nasdaq is down 30% from the peak and the S&P 500 is down 19% from the peak. These are reflections of weakness in the market,” Vijayakumar said.
In India, Vijayakumar concluded by saying, “FIIs are likely to continue selling as India is the only emerging market where they are sitting on good profits and the market provides liquidity to sell”.