FPIs return as net sellers in Sept with outflow of ₹7,624 cr from equities. What to expect in Oct?
- Data from NSDL showed that FPIs outflow stood at ₹7,624 crore in the equity market in September. While money exited from equities, FPIs turned into net buyers in the debt market with an inflow of ₹4,012 crore.
After a strong buying sentiment in August, foreign portfolio investors (FPIs) returned as net sellers in September month due to recession fears in major economies, coupled with monetary policy tightening globally and stubbornly high inflation. Majority of selling from FPIs were seen in the second half of September. That said, FPIs pulled out about ₹7,624 crore from the Indian equities. It needs to be noted that, selloffs in September are still the lowest so far in 2022. Most likely FPIs are seen to buy more in October on the back of the stable economic growth prospect of India ahead.
Data from NSDL showed that FPIs outflow stood at ₹7,624 crore in the equity market in September. While money exited from equities, FPIs turned into net buyers in the debt market with an inflow of ₹4,012 crore.
In August, FPIs made their largest buying of the current year with an inflow of ₹51,204 crore. FPIs were net buyers in the first two months (July and August) of the second quarter of FY23.
Overall, the selloffs in September are sharply low compared to the first six months of 2022. Between January to June, FPIs pulled out a record ₹2,17,358 crore from the equity market. Currently, June witnessed the most selling in the year with an outflow of ₹50,203 crore.
Year-to-date, FPIs outflow stands at ₹1,68,789 crore from the equity market.
Coming to FIIs, as per StockEdge data, these foreign investors have carried an outflow of ₹18,308.30 crore in September from domestic equities. In August, the inflow of ₹22,025.62 crore was recorded.
Last week, the major focus was on RBI's policy. In September 2022 policy, the central bank hiked the repo rate by 50 basis points for the third time in a row -- taking the key rate to 5.9%. So far in FY23, RBI has made four consecutive hikes in repo rate by 190 basis points.
Meanwhile, MPC decided to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth. RBI continues to see India's economic growth at a 7% level for FY23, while they set the inflation target of 6.7% for the overall fiscal.
Indian markets reacted positively to RBI's 4th hike on Friday. Domestic equities halted their 7 days losing streak. Sensex closed at 57,426.92 higher by 1,016.96 points or 1.80%. Nifty 50 ended at 17,094.35 up by 276.25 points or 1.64%. While the rupee strengthened slightly against the US dollar, and a slowdown in foreign investors' funds' outflow was also recorded.
What to expect from FPIs in October?
For their October 2022 insights report, Dr. V K Vijayakumar (Chief Investment Strategist) at Geojit Financial Services explained that it is important to understand that retail/DIIs are the dominant players in the market now. The share of retail investors, DIIs, and FPIs in the daily cash market volume in the exchanges are 52%, 29%, and 19% respectively. Retail/DIIs are in a formidable position unlike in the past when FPIs used to call the shots. Retail investors have been buying on every dip in this market and DIIs flush with funds have
been absorbing the massive selling by the FPIs. This new market paradigm has altered the rules of the game.
Vijaykumar said, "If we take the period from July 2021 to June 2022, FPIs sold equity worth ₹4,09,221 crore through stock exchanges. This massive selling didn’t impact the market much since this period witnessed DII buying to the tune of ₹3,28,493 crore (Source: NSDL). The number of Demat accounts surging from 40.9 million in March 2020 to above 100 million in August 2022 reflects unprecedented retail investor enthusiasm. This has stood the market in good stead."
The Geojit strategist believes FPIs have learned that exit from the Indian market is easy but entry is difficult and expensive. He said, "When FPIs try to buy 5% of the stocks that they sold, prices surge making their re-entry to the market expensive."
"India has the best growth and earnings story among the large economies of the world for at least the next couple of years. That’s why
FPIs are buying in India now even when the US 10-year bond yield is above 3.4% and the dollar index is hovering around 110."
Further, Vijaykumar said, "There is global consensus that this year and the next, India will be the fastest growing large economy in the world. India’s GDP is expected to grow around 7% in FY23 and 6.4% in FY24. India’s corporate earnings are on an upcycle. Corporate profit to GDP which had touched a recent trough of 2% is now above 4% and is well on track to go beyond 6% during the next 3 to 4 years. This will result in an explosive growth in profitability resulting in increasing FPI inflows into India."
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