FPIs offload ₹10,164 cr in Indian equities in Sept; When will buying resume?

The ₹10,164 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 ₹18,260 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.

Foreign institutional investors (FIIs) have sold ₹7,300 crore in the last three trading sessions and around ₹16,934 crore in Indian equities till September 21, according to analysts. On Friday, FIIs cumulatively bought ₹10,840.20 crore of Indian equities, while they sold ₹12,166.94 crore — resulting in an outflow of ₹12,166.94 crore on September 22.

‘’Since valuations remain high even after the recent pull back and US bond yields are attractive ( the US 10-year bond yield is around 4.49 per cent) FIIs are likely to press sales so long as this trend persists. It would be irrational to expect the FIIs to buy aggressively when the US 10-year bond yield is around 4.49 per cent and the dollar index is above 105,” 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.

When will buying resume?

Regarding sector specific investments, analysts observed that FPIs have been consistently buying in capital goods. Recently, they have been buyers in health care sector as well. Similarly, foreign institutional investors (FIIs) have also invested in capital goods and financials.

‘’The FPI flows may remain subdued in the short term until FED clarity but India will remain a sweet spot for long-term allocation among emerging markets. All other emerging markets have some issue or other. The next 5-10 years belong to India and FPIs have no choice but to come to India,” said Mukesh Kochar, National Head – Wealth Management, AUM Capital.

Domestic benchmark indices Sensex and Nifty settled lower for the fourth consecutive session on Friday, September 22, amid weak global cues as the US Treasury yields rose to their multi-year high levels and crude oil prices rose by about a per cent, weighing on investors’ sentiment for riskier equities. 

Nifty 50 fell 2.6 per cent for the week while the Sensex declined by 2.7 per cent. The BSE Midcap index lost 1.7 per cent and the Smallcap index fell 2 per cent for the week ended September 22.

Analysts observe that foreign investors can resume even if US bond yield remain higher, given that Indian markets correct further. Frontline indices snapped a three-week gaining streak yesterday driven by weak global cues, foreign fund outflows and heavy selling in HDFC Bank shares.

‘’Even after the recent correction, Nifty is trading around 20 times FY24 earnings, making India the most expensive market in the world. No doubt, India has the best growth and earnings prospects among the large economies of the world. So, if the markets correct further, by say 3 to 4 per cent, FIIs can turn buyers even if US bond yields remain high,” said Geojit’s Dr. V K Vijayakumar.

Is there an opportunity for domestic investors?

Market analysts expect FII’s to continue selling in Indian markets as long as US bond yields are on an uptrend. Profit-booking in markets can continue over FII activity. Meanwhile, DIIs buying interest offsets the risk to a certain extent. Analysts observe that FII selling can open new opportunities for domestic investors as they are not driven by the movement of US bond yields.

In September, so far, even while selling in the market, FIIs were big buyers in financials and capital goods. Feeble global cues combined with pressure on select heavyweights are currently weighing on the market sentiment. Going ahead, recovery in the banking and financial majors would be critical for any meaningful rebound else the corrective tone would continue, according to analysts.

‘’In the near-term, FIIs may press further selling in response to rising US bond yields. If this happens it will open up opportunities for investors to buy quality large-caps, particularly banking stocks which will benefit a lot from the bond inclusion,” said Dr. V K Vijayakumar.

‘’FII selling can be an opportunity for domestic investors who don’t have to worry about the dollar index and US bond yields. When high quality stocks in performing sectors like banking and capital goods decline, these can be bought for handsome long-term gains,” added Dr. V K Vijayakumar.

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Updated: 24 Sep 2023, 06:28 AM IST