Turbulence ahead: Foreign investors raise index shorts to seven-month high
- The NSO's sobering growth estimate came amid a slowdown in urban demand and lower spending by the government on account of the Lok Sabha and state elections in the first half of the fiscal year.
The stock market appears headed for further turbulence with foreign portfolio investors (FPIs) raising their bearish bets to a seventh-month high, even as they continue to sell in the cash market.
Amid rising uncertainty in the domestic and global macroeconomic environments, FPIs have increased cumulative net shorts on Nifty and Bank Nifty futures to 238,321 contracts on 8 January. This is the highest since 6 June last year when they were net short 287,426 contracts, according to analytics firm IndiaCharts, which cited NSE data.
Over the past three months, FPIs' shorting in Indian markets has been continuous but varying in intensity. Shorting rose in the wake of India's official statistics office estimating FY25 economic growth at 6.4%, a four-year low, lower than the central bank's revised estimate of 6.6%. The National Statistics Office's first advance estimate came in the backdrop of an ongoing earnings slowdown, and days ahead of Donald Trump's swearing-in as the 47th President of the US on 20 January. The Trump presidency is expected to see tariff wars and a crackdown on immigration, potentially rocking the global economy and currencies.
"FPI selling is unlikely to reverse meaningfully in the near term," said Gaurav Dua, head of capital market strategy at Mirae Asset Sharekhan. Dua attributed the selling to factors like economic and earnings slowdown at home and weaker rupee amid rising bond yields in the US ahead of import tariff hikes by the US.
The rupee has declined 2.4% since 1 October to ₹85.85 as of 8 January, amid rising US bond yields and FPI outflows.
The FPI selling has caused the Nifty to pull back almost 10% from its record high of 26277.35 to 8 January's closing of 23688.95.
"FPIs will continue selling India," said veteran investor Shankar Sharma. "India's growth cycle has peaked for a while to come. Markets anyway didn't go up because of FPIs. Their selling per se won't do much harm but worsening growth numbers definitely will," he said.
The NSO's sobering growth estimate came amid a slowdown in urban demand and lower spending by the government on account of the Lok Sabha and state elections in the first half of the fiscal year. The slowdown manifested in muted corporate earnings in the second quarter: aggregate earnings of listed corporates grew by just 4.7% year on year to ₹3.75 trillion in the September quarter, against 38% a year earlier.
This sparked the highest-ever quantum of net FPI selling in equities in a single month of ₹94,017 crore in October. The selling continued in November, though at a lower pace of 21,612 crore, and reversed in December with an inflow of ₹15,446 crore. However, the selling resumed in the new year, with net outflow of ₹15,164 crore through 8 January.
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