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MUMBAI : Foreign institutional investors (FIIs) have remained net sellers of Indian equities, having sold shares worth $4.47 billion during 1-25 February.

“FIIs have been consistently contributing towards the volatility in Indian equity markets for the past few months. It is a negative trend that looks likely to continue," said Vijay Tilakraj, head of dealings, institutional equities, Prabhudas Lilladher.

Uncertainties around the war in Ukraine and geopolitical complexities have recently been the major reason for nervousness among foreign investors, resulting in the sell-off.

The other reasons for FIIs selling over the past few months include expected rate hikes by the US Federal Reserve and concerns on US withdrawal of economic stimulus, which have led to outflows and redemptions by global funds. Fears of steep rate hikes by the Fed have abated recently, but investors are still watchful of the Fed’s decision.

“Fed rate hikes may not be very steep in the near term, but the withdrawal of monetary stimulus will still continue. This means FIIs may continue to reverse their carry forward trades and FII selling could continue especially given the macro and micro headwinds faced by India in the short term," said Deepak Jasani, head of retail research at HDFC Securities Ltd.

There may not be significant inflows into these markets, as long as the visibility on dollar returns from emerging markets like India remains weak, he said.

Clearly, the visibility of returns from emerging markets needs to improve for foreign investors to consider higher allocation. Foreign funds will be looking at not only stable currency but also earnings visibility and strong returns.

High crude prices are also adding to concerns. On Monday, Brent crude again surged to $101.74 per barrel, up 4.16% over the previous close.

“Crude oil prices are rising and trading higher than $100 per barrel. This will certainly add to the raw material costs and squeeze margins of India Inc. They will also likely dismantle all projections by the Reserve Bank of India," Tilakraj said. Domestic institutional investors (DIIs) meanwhile continue to support the markets. Provisional BSE figures showed that while FIIs sold equities worth close to 3,948.4 crore on Monday, DIIs bought shares worth 4,142.82 crore.

Domestic flows have remained strong and with continued SIP flows and a better equity investment culture, domestic flows should support markets, said Siddhartha Khemka, head, retail research, Motilal Oswal Financial Services Ltd.

“DIIs are supporting the market with every FII selling for the last four-five months. DIIs have added Indian equity of $24 billion in FY22 till date, while FIIs turned net sellers and sold $13 billion for the same period," said Neeraj Chadawar, head, quantitative equity research, Axis Securities. DIIs will continue to support the market as long as SIP flows are robust and once the quantum and number of rate hikes are known to the market, flows are likely to stabilize in the second half of CY22, and follow fundamentals drivers such as growth and earnings, Chadawar said.

Meanwhile, the volatility in the domestic equity markets continued on Monday. Sensex and Nifty managed to close 0.7% and 0.81% higher, but not before deep cuts of slightly less than 2% in the morning trades after world powers imposed fresh sanctions on Russia against its invasion of Ukraine.

ABOUT THE AUTHOR

Ujjval Jauhari

Ujjval Jauhari is a deputy editor at Mint, with over a decade of experience in newspapers and digital news platforms. He is skilled in storytelling, reporting, analysing and writing about stocks, investment ideas, markets, corporates and more. He is based in New Delhi.
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