FPIs offload ₹9,784 crore in Indian equities, extend selling streak into October; Will they miss a potential rally?

Foreign portfolio investors (FPIs) continued their selling streak in the second week of October, a trend that started last month, on high US bond yields. FPIs have sold ₹9,784 crore worth of Indian equities and offloaded a total of ₹5,867 crore as of October 13, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL ) data.

The ₹9,784 crore-figure also includes bulk deals and investment in primary market. According to NSDL data, FPIs sold equity for ₹13,652 crore through the stock exchanges till Friday. 

‘’They invested ₹3,868 crore through the primary market and others during the same period taking the net sell figure to ₹9,784 crore. The sustained rise in US bond yields was the principal factor driving the FPI selling,'' said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Also Read: FIIs take U-turn on easing US bond yields; DIIs sell over ₹100 crore as Nifty 50 pares gains

Will Q2 momentum halt FPI/FII selling?

Foreign institutional investors (FIIs) continued their selling streak in the second week of October after recording a massive outflow from Indian markets last month over global cues. Even though FIIs were net sellers last month, but domestic institutional investors (DIIs) infused a total of ₹19,310 crore in September, that closely countered FII selling and imparted resilience in markets. 

Regarding sector specific investments, analysts observed that FPIs continued to sell in financials, power and IT and continued to buy in capital goods and automobiles so far this month.

FIIs sold ₹25,000 crore in cash markets in September, according to analysts. The US Treasury yields hit a 16-year high mark and crude oil prices almost touched $98 per barrel in the last week of September amid concerns over interest rates staying high for an extended period and its impact on the global economy. 

FPIs turned net sellers last month because strength in the US dollar index and the US 10-year bond yield remaining high are short-term negatives for FPI capital flows to emerging markets like India, according to analysts. High crude oil prices in the last week of September also weighed on FPIs market behavior.

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Analysts reckon that amid high US bond yields and stronger US dollar, FPIs may not halt their selling streak. ‘’In the context of elevated dollar and US bond yields FPIs are unlikely to turn buyers in the market soon. Q2 results from financials, which are expected to be good, might restrain FPIs from selling in this segment,'' said Geojits' Dr. V K Vijayakumar.

Will FPIs miss a potential rally in Indian markets?

Domestic benchmark equity indices slipped into the negative territory on Friday despite some intraday recoveries. In the last hour of the trade, index heavyweight stocks such as HDFC Bank, Kotak Mahindra Bank, State Bank of India, and Axis Bank witnessed major selling dragging down the benchmark indices.

Nifty 50 lost 42.95 points to settle at 19,751.05. The Sensex falls 125.65 points to close at 66,282.74. Further, IT stocks also weighed on the market sentiment on the backdrop of US inflation worries.

Despite the fall on Friday, the benchmarks logged weekly gains of nearly 0.5 per cent each, due to a relief rally earlier in the week on easing US yields and dovish comments from US Federal Reserve officials.

‘’The Indian market continues to exhibit resilience even in the midst of many challenges and, therefore, there is a growing concern among FPIs that if they continue to sell, they will miss out on the potential rally in the Indian market. This might restrain the FPIs from selling heavily in the coming days,'' said Geojit's Dr. V K Vijayakumar.

‘’However, if the Israel-Hamas conflicts widens and crude shoots up, they might continue to sell. The level of uncertainty is high'', added the analyst.