FPIs become aggressive sellers; sells off ₹17,083 crore in Indian stocks

Analysts observed that given the delays in interest rate reductions, concerns about inflation, deceleration in corporate profitability, and premium valuation, foreign investors will continue to be sellers in Indian markets.

Business

By Sneha Sengupta On May 11, 2024

This month, following the most recent stock market meltdown brought on by election-related volatility and the hawkish posture of international central banks, foreign portfolio investors (FPIs) have become active purchasers in the Indian markets. FPIs reduced their buying momentum in Indian markets last month after turning net sellers since the start of 2024–25 (FY25).

According to National Securities Depository Ltd (NSDL) data, FPIs invested ₹17,083 crore in Indian stocks, with a total outflow of ₹16,797 crore as of May 10 when debt, hybrid, debt-VRR, and equities are taken into account. With debt outflows, the total is ₹1,602 crore.

FIIs and DIIs Status

‘’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,” stated analysts at Geojit Financial Services.

The problem of Bulk Selling

Analysts speculate that HNIs and retail investors have booked some profits and are in a wait-and-see mode due to the data suggesting steeper falls in the broader market.

‘’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),” added Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Inflows of FPI inflows to continue?

The FPI plan is to purchase inexpensive China through Hong Kong and sell India, which is a costly country. India’s price to earnings (PE) ratio is over twice as high as Hong Kong’s. The markets in China and Hong Kong are inexpensive, with PE ratios of about 10, whereas India’s markets are pricey.

‘’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,” mentioned Dr. V K Vijayakumar.

FPI Status in India

In February 2024, the inflow into Indian stocks was ₹1,539 crore, while the debt market investment increased to ₹22,419 crore during the month, adding to the ₹19,836 crore purchased in January.

Due to strong yields on US bonds, foreign portfolio investors (FIPs) sold off ₹8,671 crore of Indian stocks and ₹10,949 crore of debt last month. But in March 2024, they invested ₹35,098 crore in Indian stocks, the largest inflows seen in the first three months of 2024. Despite high US bond yields, the FPI outflow decreased initially in February 2024 and by the end of the month, they were net buyers.

The US Federal Reserve’s announcement that its tightening cycle was coming to an end and its anticipation of a rate decrease in March 2024, however, caused the inflow to spike in December on strong global cues. As a result, foreign money began pouring into emerging economies like India and US bond yields crashed.

Disclaimer: This article is for informational purposes only. Kindly seek expert’s opinion before making any investment decisions.