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Business News/ Markets / Stock Markets/  FPIs remain assertive sellers in Indian equities as net outflow swells to 22,046 crore: What's fueling the sell-off?
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FPIs remain assertive sellers in Indian equities as net outflow swells to ₹22,046 crore: What's fueling the sell-off?

FPIs offloaded ₹22,046 crore worth of Indian equities and the total outflow stands at ₹17,848 crore as of May 24, taking into account debt, hybrid, debt-VRR, and equities

FPIs offloaded ₹22,046 crore worth of Indian equities so far this month. Photo: iStockPremium
FPIs offloaded 22,046 crore worth of Indian equities so far this month. Photo: iStock

Foreign portfolio investors (FPIs) have turned aggressive sellers in Indian markets ever since reducing their buying momentum with the onset of the new fiscal 2024-25 (FY25). Volatility due to Lok Sabha elections 2024, hawkish stance from global central banks, and outperformance in Chinese markets has weighed on the sentiments of foreign investors.

FPIs offloaded 22,046 crore worth of Indian equities and the total outflow stands at 17,848 crore as of May 24, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. The total debt inflows stand at 2,009 crore so far this month.

"The FII selling which began as a trickle in April turned into a flood in May. As per NSDL data FIIs sold equity for 22,046 crore through 24th May. FII selling in the cash market was massive at 33,460 crore,'' said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Also Read: How an FPI mood change turbo-charged stocks on Thursday

Fund flow by FIIs and DIIs

Foreign institutional investors (FIIs) significantly toned down their bearish sentiments as the net inflow exceeded the sell-off. FIIs were sellers for three out of four sessions last week yet the total inflow was recorded at 1,165.54 crore. Domestic institutional investors (DIIs) were net buyers for all sessions, with a total investment of 6,977.71 crore, according to stock exchange data.

"FPIs and FIIs have been on a selling trend in Indian stock markets this calendar year. From January to May so far, they have net sold around 120,000 crore in Indian markets. This is the secondary market outflow. In May we have seen around 34,000 crore of FPI and FII selling till May 24th," said Ajay Bagga, banking and market expert.

He further added, "The reasons for this are Indian election results uncertainty and risk-off sentiment, some reallocation to the heavily discounted Chinese stocks which had fallen sharply over the last year and general outflows from GEM funds which invest 10-18 per cent of their assets in Indian markets."

Geojit's Dr. V K Vijayakumar said that on the general elections front, the situation is slowly changing in favour of the ruling dispensation. The base case scenario appears to be a clear verdict in favour of BJP/NDA. 

‘’The FII’s massive selling has ceased and they have even turned buyers in recent days. Going forward, as clarity emerges on the election front, FIIs are likely to buy in India since they cannot afford to miss the post-election results rally. Actually, the rally may begin even before the election results,'' said Dr. V K Vijayakumar.

Also Read: Poll fever grips D-Street: Nifty 50, Sensex post biggest 2-week gain in 5 months; Will the bull run sustain post-June 4?

FPIs extend April's selling streak: Key reasons behind the outflow

Broadly, market experts highlighted that the uncertainty over the outcome of Lok Sabha elections 2024, high US bond yields, outperformance of Chinese stocks, soaring Indian market valuations in the short-term, delay in US Fed interest rate cuts, and ongoing geopolitical conflicts in the Middle-East exerted pressure on Indian markets.

Dr. V K Vijayakumar explained that the heavy selling was triggered by the massive outperformance of Chinese stocks. ‘’The Hang Seng index, dominated by Chinese H stocks (FIIs invest through the Hong Kong market since there are restrictions on investing through the Shanghai market) boomed by 7.66 per cent during the last month. The valuation of Hang Seng had crashed to a PE multiple of around nine prompting FII buying, triggering ‘ sell India, buy China trade.''

‘’The election-related jitters, too, might have influenced FII selling. News that the decline in voter turnout in the first three phases of voting restrained the bulls. The view that it won’t be an easy victory for the BJP/ NDA, which the market had largely discounted, gained ground,'' he added.

Also Read: S&P BSE to include Adani Ports in Sensex index from June 24; Wipro to be dropped

When will FPI inflows resume?

The long-term outlook for FPI flows into Indian debt is positive due to India's inclusion in global bond indices. However, near-term flows are being impacted by global macroeconomic uncertainty and volatility. The trend will reverse once the interest rate outlook becomes clearer, according to analysts.

‘’The RBI's dividend payout is a positive development for the fiscal situation. However, its impact on FPI interest in the debt market is uncertain and will depend on how the government utilises the dividend. Considering the overall economic conditions, clarity on this matter will emerge in the full budget in July 2024, providing a clearer picture for FPI investors,'' said Vipul Bhowar, Director, Listed Investments, Waterfield Advisors.

Analysts highlighted that 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 or PE ratio in India is more than double the PE ratio in Hong Kong.

‘’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…Going forward, there is likely to be a dramatic change in FPI equity flows in response to election results. Political stability will attract huge inflows,'' 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 provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.

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ABOUT THE AUTHOR
Nikita Prasad
Nikita covers business news and has been producing news on digital platforms since 2018. She writes on economy, policy, markets, commodities, industry. Her core areas of interests include infrastructure, energy, oil and gas, railways, and transport/mobility. She has worked for business news channels like Moneycontrol, NDTV Profit, and Financial Express in the past. If you have story ideas/pitches/reports or quotes/views to share, reach her at nikita.prasad@htdigital.in.
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Published: 25 May 2024, 07:56 PM IST
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