FPIs sell 7,998 crore worth of Indian equities, continue their recent trend of selling, and review the specifics

 FPIs sell 7,998 crore worth of Indian equities, continue their recent trend of selling, and review the specifics

The first week of October saw a continuation of the selling by foreign portfolio investors (FPIs) that began last month due to record-high US bond yields and a stronger US dollar. As of October 6, FPIs sold Indian shares worth 7,998 crore and offloaded a total of 6,024 crore, including debt, hybrid, debt-VRR, and equities, according to statistics from the National Securities Depository Ltd (NSDL).

The 7,998 crore amount also covers investments in the primary market and bulk transactions. FPIs sold stocks in the cash market for $9,412 crore in the first four days of October. FPIs emerged as net sellers in September, reversing the earlier three-month pattern of persistent buying. According to economists, the main cause of FPI outflows since last month has been rising US bond yields.

The gradually increasing US bond yields have had a significant impact on capital flows to markets in recent weeks. Early in October, the US bond market saw a collapse that momentarily caused the 30-year bond yield to reach 5%. According to Dr. V K Vijayakumar, Chief Investment Manager at Geojit Financial Services, "the benchmark 10-year yield is routinely over 4.7% forcing the FPIs to sell in underdeveloped markets."

Why did FPIs sell for net proceeds in September?

Analysts claim that FPI capital flows to emerging countries like India are negatively impacted in the short term by the strength of the US dollar index and the continued high yield on US 10-year bonds, which caused FPIs to turn net sellers in the cash market last month. The last week of September saw high crude oil prices, which had an impact on FPIs' market behavior.

According to researchers, foreign institutional investors (FIIs) sold $25,000 crore in cash markets in September. Concerns about interest rates remaining high for a lengthy period of time and their effects on the global economy caused the US Treasury yields to reach a 16-year high and the price of crude oil to almost reach $98 per barrel in the final week of September. Since August, this has substantially backed FIIs' trend of selling.

This year, India has continued to lead other emerging countries in luring foreign direct investment (FPI), but September saw selling and October has started with the same pattern. According to Dr. V K Vijayakumar, FPIs sold stocks in the cash market for $9,412 crore in the first four days of October.

Will Q2 momentum stop FPI and FII selling?

FIIs kept selling in the first week of October after experiencing a significant outflow from Indian markets the previous month due to global factors. Domestic institutional investors (DIIs) invested a total of 19,310 crore in September, almost offsetting FII selling and giving the markets strength despite the fact that FIIs were net sellers last month.

Regarding sector-specific investments, researchers have noted that FPIs have purchased capital goods, automobiles, and auto parts while also selling financial services, power, information technology, and oil and gas. Similarly, FIIs have also made investments in financials and capital products.

All eyes will be on the start of business results for the second quarter of the present fiscal year (Q2 FY24), which runs from July to September, in the coming week beginning on October 9.

The biggest software services provider in India, Tata Consultancy Services (TCS), is scheduled to release its Q2 results on October 11, 2023, with HCL Technologies and Infosys following on October 12. This is causing particularly high expectation among investors.

Even though, economists predict that FPIs may continue their selling trend due to the high US bond yields and the higher US dollar.The high dollar and US bond yields make it doubtful that FPIs would soon start buying in the market. According to Dr. V K Vijayakumar of Geojits, Q2 financial results, which are anticipated to be positive, "might restrain FPIs from selling in this segment."

Kotak Securities' Shrikant Chouhan, Head of Research (Retail), concurs. According to the expert, "Sharp intra-day gyration is anticipated to persist due to negative global conditions and foreign fund withdrawals from the home market.

As long as the US dollar and bond yields don't moderate, emerging economies like India may experience a loss of foreign investment. Any anomaly in the global space could prompt selling led by the FIIs as attention shifts to the beginning of Q2 earnings, according to Chouhan.