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Business News/ Markets / Stock Markets/  FPIs selling bias stays even in June. Is there a breather from bears in near term
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FPIs selling bias stays even in June. Is there a breather from bears in near term

NSDL data shows that, from June 1st to 3rd, FPI pulled out ₹2,288 crore from the equity market. They were net buyers in the debt market to the tune of ₹857 crore. So far, in 2022, FPIs have removed ₹1,69,443 crore from the equities market.

In May, FPIs outflow stood at ₹39,993 crore, and the selling aggregated to the tune of ₹17,144 crore in April this year. (Photo: Mint)Premium
In May, FPIs outflow stood at 39,993 crore, and the selling aggregated to the tune of 17,144 crore in April this year. (Photo: Mint)

Foreign Portfolio Investors (FPIs) selling bias does not seem to fade anytime soon as the June month begins with a bearish sentiment as volatility continues in markets amidst macro backdrops. FPIs have been net sellers in the Indian equities for the past 8-9 months now. Indian benchmarks have corrected significantly with Sensex below 56,000 and Nifty 50 under 16,600-level currently.

NSDL data shows that, from June 1st to 3rd, FPI pulled out 2,288 crore from the equity market. They were net buyers in the debt market to the tune of 857 crore.

In May, FPIs outflow stood at 39,993 crore, and the selling aggregated to the tune of 17,144 crore in April this year.

So far, in 2022, FPIs have removed 1,69,443 crore from the equities market.

On Thursday, BSE Sensex closed at 55,769.23 lower by 48.88 points or 0.09%. Nifty 50 ended at 16,584.30 below 43.70 points or 0.26%.

Vinod Nair, Head of Research at Geojit Financial Services said, "The late sell-off indicates the lack of confidence in the domestic market driven by the concerns over Central Bank policy. While in the global market, the investors were waiting for the release of US job data."

Why are FPIs net sellers?

Manoj Purohit, Partner & Leader – Financial Services Tax, BDO India explains in the recent past the market has witnessed a trend of massive cash outflows, especially in the equity segment, largely due to dilution by the Foreign Portfolio Investors (FPIs) consistently for the past 8-9 months. The major driving factors for foreign institutions for such withdrawal from emerging markets are attributable to few global and domestic factors. Apart from India, other emerging markets, including Taiwan, Indonesia, South Korea and the Philippines are also facing the heat, resulting in a substantial selloff.

On the global front, according to Purohit, the key contributor is the rising interest rates. Additionally, there are concerns of uncertainty about the ongoing military conflict between Russia and Ukraine which is impacting the crude prices. Globally, the rate hikes by the US Federal Reserve, tightening of monetary policy by the global central banks, and appreciation of the foreign currency dollar rate have triggered offshore investors to offload the equities from sensitive markets.

Meanwhile, on the domestic side, Purohit points out that the rate hike made by the RBI in the last month has added fuel to the fire. Even the financial results of some of the large-domestic corporates were not following the expectations. There are concerns that these factors could be a dampener to the recovery path of the economy in the post-pandemic phase and put a curb on household spending. Taking a clue from this in its update to Global Macro Outlook 2022-23, even Moody’s Investors Service slashed India’s economic growth projection to 8.8% for 2022 from 9.1% earlier.

What's ahead?

The next key thing to watch is RBI's monetary policy this month. In May, RBI was surprised by hiking the policy repo rate by 40 basis points to 4.4% to tackle mounting inflation which has stayed above the central bank's comfort zone for the fourth consecutive month.

Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance said, "We expect the RBI to hike interest rates by anywhere between 25-40 bps in the June policy meeting. No doubt inflation has risen in India, and it is largely attributable to the global geopolitical environment. The GDP growth of 8.7% in FY22 on the low base, still shows that domestic demand remains feeble and with higher inflation dampening the purchasing power, the regulator may not want to raise rates too aggressively. RBI is taking measures to bring down excess liquidity in the system to control the inflation, meanwhile, the Government is also managing inflation by reducing tax on petroleum products and restricting the exports of essential commodities."

Nair said, "The RBI is expected to hike rates by 25bps to 35bps and the Fed by 50bps, but the outlook & changes in the economic growth and inflation will determine the market trend. If the central banks decide on a stringent policy tightening, the market mood can swing bearish."

Talking about market expectations next week, Yesha Shah, Head of Equity Research, Samco Securities said, inflation being a key factor will be the central point of all discussions in the coming week as China and United States’ inflation statistics will be released. Another significant event for domestic markets will be the outcome of the RBI MPC meeting. Market participants will try to read between the lines of the RBI's monetary policy and given the worsening inflation fears, the street expects a 35-50 bps repo rate hike this time. Considering these major events, investors are currently advised to use knee-jerk reactions to, at best, cherry-pick quality stocks in resilient sectors and invest in a staggered manner.

Giving an outlook on FPI's investments in the equity market, Purohit said the volatility trend is temporary and may subside in the coming months, thanks to the above-average monsoon prediction which will give a boost to the industry and agricultural growth. Positive credit growth, a substantial increase in the long-term investment plans by large industry players, and a significant budget allocation on capital spending made by the government will act as catalysts for bringing back the momentum in the investment cycle.

Also, recent developments on easing the regulatory and tax laws have once again reiterated the firmness of the government to provide more avenues for foreign investments. This will surely have a multiplier effect to contribute to India’s growth story and dream of becoming a USD 5 trillion economy by 2025, Purohit added.

Dr. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said, there are signs of FPI selling exhaustion. In the early days of June, FPI selling is in very small amounts.

Vijayakumar added, "If the dollar and the US bond stabilises, FPI selling is likely to stop and may even reverse. On the contrary, if US inflation remains elevated and dollar and bond yields continue to rise, FPIs may resume selling. US inflation data is the key."

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Published: 03 Jun 2022, 05:15 PM IST
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