Foreign investors' brief return to Indian equities appears to be losing steam, with FPIs again turning sellers in September after two months of inflows. After buying Rs 11,045 crore in July and Rs 10,231 crore in August, foreign institutional investors have resumed selling in the secondary market. NSDL data up to September 19 shows FPI outflows of Rs 23,676 crore through the exchanges.
July and August had raised hopes that foreign investors were coming back after a long selling spell earlier in the year. FIIs had sold Rs 34,152 crore in January, bought Rs 12,950 crore in February, and then sold heavily between March and June. March alone saw outflows of Rs 1.15 lakh crore, followed by Rs 71,203 crore in April, Rs 50,188 crore in May and Rs 35,174 crore in June.
That made the July-August inflows look like a possible turn in sentiment. September is now showing that the recovery was short-lived. "There are indications of FPI flows into India again turning negative after the positive flows in July and August," Vijayakumar said.
IPO market still gets foreign money
The selling is not across the board. Foreign investors continue to show interest in India’s primary market, even as they remain cautious in the secondary market. Vijayakumar said FPI investment through the primary market stood at Rs 2,703 crore up to September 19. This has taken total FPI investment through the primary market this year to Rs 48,550 crore.
This partly explains why the IPO market has stayed active despite weak sentiment in listed equities. Large public issues, anchor books and fresh listings continue to attract foreign capital, while the broader cash market is seeing pressure.
"This partly explains the ongoing boom in the primary market despite the tepid performance of the secondary market," Vijayakumar said.
Why FIIs are selling again
The main pressure points are global. Analysts point to higher crude prices, elevated US bond yields, geopolitical risk and currency concerns as the key reasons behind renewed foreign selling. Vijayakumar said future FPI flows will be influenced by the ongoing Iran-US conflict and its impact on crude prices. Higher crude is negative for India because it can widen the current account deficit, increase inflation pressure and weaken the rupee.
"Elevated crude prices and the high US bond yields, with the US 10-year yield at 5%, are the negatives for Indian equity market and FPI flows," he said.
Dheeraj Gaur, Chief Investment Strategy Officer at Choice Wealth, said foreign investors are still avoiding the secondary market, even though they remain active in IPOs and fresh listings.
"The big story is FPIs still don’t want much to do with the secondary market, but they can’t seem to get enough of IPOs and fresh listings," he said.
He added that the debt side has also worsened because of rising global yields, expensive oil and fresh worries around the rupee.
Selling pressure visible in cash market
The recent cash-market numbers show the pressure clearly. Gaur said FPIs sold Rs 3,106 crore, Rs 588 crore and Rs 3,164 crore in the cash market between September 15 and 17. They bought Rs 600 crore on Friday, but that was not enough to offset the damage.
For the week, FPIs were net sellers by Rs 6,258 crore on provisional numbers. Depository data showed outflows of about Rs 7,835 crore over four days.
"So, even with Friday's little rebound, the final numbers make it clear there's no real turnaround yet. We need to see more green days before calling this anything other than a tough stretch," Gaur said.
Domestic institutional investors have continued to absorb part of the selling pressure. Pabitro Mukherjee, Deputy Vice President-Research at Bajaj Broking, said FIIs remained net sellers for the fifth straight week, offloading Rs 7,620 crore. DIIs extended their buying streak with net purchases of Rs 11,232 crore, helping the index recover from mid-week lows.
Month-to-date, FIIs have sold Rs 7,041 crore against DII buying of Rs 36,219 crore. During this period, the Nifty is down 3% from its August-end close of 24,080.
Over the past month, FIIs have been net sellers in all five weeks, while DIIs have remained buyers throughout. This domestic support has limited the market fall but has not fully removed the pressure from foreign selling.
Analysts expect volatility to continue as long as crude oil and US bond yields remain high. The market will also track the Iran-US conflict, rupee movement, Brent crude prices and upcoming PMI data in the US and India.
The positive side is that India’s economy remains resilient and earnings growth is expected to improve. Vijayakumar said these factors are still supportive for Indian equities.
Disclosure: This article has been written by Podishetti Akash, who is not a SEBI-registered Research Analyst or an Investment Adviser. Podishetti Akash and her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclosures here.
