FPIs sell 9,784 crore worth of Indian shares, continuing their recent trend of selling into October; will they miss a possible rally?

 FPIs sell 9,784 crore worth of Indian shares, continuing their recent trend of selling into October; will they miss a possible rally?

The second week of October saw a continuation of the trend of selling by foreign portfolio investors (FPIs), which began last month due to elevated US bond rates. As of October 13, FPIs sold Indian shares worth $9,784 crore and offloaded a total of $5,867 crore, including debt, hybrid, debt-VRR, and equities, according to data from National Securities Depository Ltd (NSDL).

The 9,784 crore amount also covers investments in the main market and large-scale transactions. According to NSDL statistics, FPIs sold shares via stock exchanges for a total of $13.652 billion up till Friday. 

They made 3,868 crore in investments in the primary market and other channels over the same time period, bringing the total net sale to 9,784 crore. The main cause of the FPI selling was the prolonged increase in US bond rates, according to Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Will Q2 momentum stop FPI and FII selling?

Following a significant outflow from Indian markets last month due to global signals, foreign institutional investors (FIIs) extended their selling spree in the second week of October. 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. 

Analysts said that FPIs continued to sell in the banking, electricity, and IT sectors and to purchase in the capital goods and automotive sectors so far this month.

According to estimates, FIIs sold $25,000 crore in cash markets in September. Concerns about interest rates being 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 nearly reach $98 per barrel in the last week of September. 

The strength of the US dollar index and the continued high yield on US 10-year bonds, according to experts, are short-term headwinds for FPI capital flows to developing economies like India. As a result, FPIs become net sellers last month. The final week of September saw high crude oil prices, which had an impact on FPIs' market activity.

Analysts predict that despite the higher US currency and high US bond rates, FPIs may continue to sell. The high dollar and US bond rates make it doubtful that FPIs would soon start buying in the market. According to Dr. V K Vijayakumar of Geojits, Q2 financial reports, which are anticipated to be positive, may prevent FPIs from selling in this market.

Will FPIs miss a possible market rally in India?

Despite minor intraday recoveries, domestic benchmark market indexes fell into the red on Friday. Index heavyweight companies including HDFC Bank, Kotak Mahindra Bank, State Bank of India, and Axis Bank saw significant selling in the last hour of trading, bringing down the benchmark indexes.

The Nifty 50 closed at 19,751.05. It had lost 42.95 points. The Sensex drops 125.65 points to finish at 66,282.74 on the index. In addition, the market's mood was negatively impacted by IT stocks on concerns about US inflation.

Despite the decline on Friday, the benchmarks still recorded weekly gains of around 0.5% apiece as a result of a relief rally earlier in the week triggered by falling US rates and doveish remarks from US Federal Reserve officials.

There is increasing anxiety among FPIs that if they continue to sell, they would lose out on the possible rebound in the Indian market since the market has shown resilience despite numerous obstacles. According to Dr. V K Vijayakumar of Geojit, this may prevent the FPIs from selling in large quantities in the next days.

However, they could continue to sell if the Israel-Hamas confrontations intensify and oil prices rise. The expert said, "There is a significant amount of ambiguity.