FPI net sellers in Sept, sell ₹4,203 cr in Indian equities; What lies ahead?

The ₹3,636 crore-figure also includes bulk deals and investment in primary market. Excluding the bulk deals and investment through the primary market, the sell figure in the cash segment rises to ₹8832 crore, according to analysts.

Why are FPIs net sellers in September

Rising bond yields in the US and strong dollar index are negative for capital flows. This was the primary reason why FPIs turned net sellers in the cash market this month. Strength in the US dollar index and the US 10-year bond yield remaining high are short-term negatives for FPI flows to emerging markets like India, according to analysts.

“Net FPI investment in September has turned negative…This trend reversal in FPI investment from buying in the last three months to selling in September is mainly due to the rising US bond yields and the uptrend in the dollar index,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

In August, FPIs bought ₹12,262 crore worth of Indian equities and infused a total of ₹18,338 crore as of August 31, compared to its prior three months of sustained buying, according to NSDL data.

FPIs recorded their fifth straight monthly buying in the Indian markets during July 2023 – slightly less that ₹47,148 crore in June – which was the highest monthly FPI inflow since August 2022. Sustained FPI inflows had powered the uptick in the blue-chip Nifty 50 and S&P BSE Sensex, driving the benchmarks to record highs in July.

When will FPIs resume buying?

Regarding sector specific investments, analysts observed that FPIs have been consistently buying in capital goods and power. Recently, they have been buyers in health care sector as well. This explains the smart uptrend in power stocks and capital goods stocks such as L&T, according to Dr. V K Vijayakumar. 

Analysts observed that the last FED minutes released were more hawkish than expected. Last week, the US 10-year yield touched a 16-year high. At the same time valuation of Indian equity is not cheap and is supported by funds flow, according to market observers.

On Friday, elevated crude oil prices, higher US treasury yields, and strength in the dollar index also weighed on the Indian rupee through the week but some softness by the week-end offered respite. The dollar index was marginally lower at 105 while the 10-year US bond yield dipped to 4.24 per cent on September 8.

FPIs can be expected to turn buyers when the dollar index and US bond yields decline, which, in turn, will depend on the incoming US inflation and growth data. Investors will be keenly eyeing US inflation numbers due on September 13 for further cues on the Federal Reserve policy. India will also report its retail price inflation data on Tuesday.

FIIs continue selling spree, DIIs to drive Nifty to 20,000-mark
In September so far, foreign institutional investors (FIIs) have sold in the cash market for ₹8,608 crore and domestic institutional investors (DIIs) have bought for ₹5,715 crore. Sustained DII investment supported by strong retail buying is driving the market higher in spite of FII selling, according to analysts.

On Friday, FIIs cumulatively bought ₹9,850 crore of Indian equities, while they sold ₹10,074.71 crore — resulting in an outflow of ₹224.22 crore. Meanwhile, DIIs infused ₹8,324.05 crore and offloaded ₹7,173.90 crore, registering an inflow of ₹1,150.15 crore, as per the NSE data.

‘’The FII selling has been triggered by the rising US bond yields and the strengthening dollar. With the yield from the US 10-year at 4.29 per cent and 2-year at 5 per cent, the FIIs are likely to sell further impacting market sentiments,” said Geojit’s Dr. V K Vijayakumar.

In spite of the net institutional selling by foreign investors, Nifty is up by 434 points for the month so far. This, along with the hyper activity in the mid-and small-cap segments, point to the active participation of retail investors in the rally, noted analysts.

‘’Nifty has been gaining strength and is inching closer towards its life high of 19,992. With monsoon gradually improving and India set to host G20 summit over the weekend, sentiments are buoyant and may lift market towards its life high and 20k mark over the next few days,” said Siddhartha Khemka, Head – Retail Research, Motilal Oswal Financial Services.

Moreover, FPI selling in financials is keeping the prices of the banking bluechips low. This is an opportunity for retail investors since this segment is doing well and the stocks are fairly valued, according to Geojit’s Dr. V K Vijayakumar.

Updated: 09 Sep 2023, 04:56 PM IST