FPIs invested ₹17,083 crore worth of Indian equities and the total outflow stands at ₹16,797 crore as of May 10, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. The total debt outflows stand at ₹1,602 crore so far this month.
Analysts noted that foreign investors will remain sellers in Indian markets given the delays in the interest rate cuts, inflationary concerns, moderation in corporate earnings, and premium valuation. The selling pressure on majority of indices has led to a rise in volatility index ‘India VIX’ in the past few sessions.
Fund flow by FIIs and DIIs
Foreign institutional investors (FIIs) are on a selling spree in Indian markets with the total outflows nearing ₹25,000 crore in May 2024. FIIs have offloaded ₹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 a total investment of ₹19,410 crore, according to stock exchange data.
Analysts said that high quality largecaps have turned weak now due to the bulk selling by FIIs. ‘’There is aggressive selling by FPIs in May…The selling by FIIs in the cash market is much higher than this at ₹24,975 crore. The divergence in institutional activity is becoming stark this month. FIIs have turned sustained sellers and DIIs have turned sustained buyers in all trading days of this month,” said analysts at Geojit Financial Services.
FIIs, FPIs dump Indian shares: Key reasons behind the bulk selling
From the data showing sharper declines in the broader market, it appears that HNIs and retail investors have booked some profits and are in a wait and watch mode, perhaps responding to the noise relating to uncertainty regarding the election results, according to analysts.
Apart from the uncertainty surrounding election outcome and the impact of high US bond yields, there is another major reason behind the bulk selling by FIIs. That remains to be the current outperformance logged by the Chinese and Hong Kong markets, according to market experts.
‘’An important point to understand is that FIIs are selling not because of concerns relating to elections but because India is underperforming (Nifty down by 2.06 per cent in the last one month) while China and Hong Kong are outperforming (Shanghai Composite and Hang Seng up by 3.96 per cent and 10.93 per cent respectively in the last one month),” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Market analysts said that the US Federal Reserve’s decision indicates rate cuts much lower-than-expected earlier this year. Inflation has turned stubborn at lower levels. However, the latest jobs data in the US indicates a slowing economy and, therefore, rate cuts may be necessitated.
When will FPI inflows resume?
The FPI strategy is to sell India which is expensive and buy China which is very cheap mainly through Hong Kong. The price to earnings (PE) ratio in India is more than double the PE ratio in Hong Kong. Chinese and Hong Kong markets are cheap with PE ratio around 10 while India is expensive with double the PE of these markets.
‘’So long as this ‘Sell India, Buy China’ trade sustains FII selling will weigh on the markets. The situation can change dramatically when clarity emerges on the election outcome. If the election results turn out to be favourable from the market perspective, aggressive buying by DIIs, retail and HNIs can push the market sharply up,” said Dr. V K Vijayakumar.
FPI activity in Indian markets
In the first week of May, FPIs snapped their April’s selling streak and turned net buyers in Indian equities, however, sell-off continued in debt market. FPIs offloaded ₹8,671 crore in Indian equities last month and ₹10,949 crore in debt markets over high US bond yields. However, they pumped ₹35,098 crore in Indian equities during March 2024 – the highest inflows recorded in the first three months of 2024. FPI outflow initially declined in February 2024 until they were net buyers by the end of the month, despite high US bond yields.
The inflow into Indian equities stood at ₹1,539 crore in February 2024 and the debt market investment rose to ₹22,419 crore during the month on top of the ₹19,836 crore bought in January. The inclusion of government bonds to JPMorgan and Bloomberg debt indices had especially triggered foreign fund inflows into debt markets. FPIs turned massive sellers in January 2024 snapping their buying streak as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.
However, inflow intensified in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.
For the entire calendar year 2023, FPIs bought ₹1.71 lakh crore in Indian equities and the total inflow stands at ₹2.37 lakh crore taking into account debt, hybrid, debt-VRR, and equities, according to NSDL data. FPIs’ net investment in Indian debt market stands at ₹68,663 crore during 2023.
Disclaimer: The views and recommendations made 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 decisions.
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Published: 11 May 2024, 04:57 PM IST