Foreign portfolio investors (FPIs) continued their selling trend for the second consecutive month in October, pulling out ₹8,000 crore from Indian equities. This persistent selling can be attributed to several factors, including the consistent strengthening of the US dollar index and the gradual increase in US bond yields. Additionally, the surge in crude oil prices also weighed on FPI selling.
September marked the beginning of FPIs turning into net sellers, withdrawing ₹14,768 crore from Indian Equities. This shift occurred following a period of sustained buying that commenced in March and continued until August. During this bullish phase, FPIs infused a substantial ₹1,68,179 crore into Indian equities, as per the depositories data.
Looking at the monthly flows, June emerged as the peak month for inflows, with a notable ₹47,148 crore poured in, followed closely by July with ₹45,365 crore and May with ₹43,838 crore. Conversely, January recorded the highest monthly outflow, amounting to ₹28,852 crore.
Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said, "The dominant factor impacting capital flows to markets in recent weeks has been the steadily rising US bond yields. The early days of October witnessed a rout in the US bond market, which took the 30-year bond yield to 5%. The benchmark 10-year yield is consistently over 4.7%, forcing the FPIs to sell in emerging markets."
“FPIs have been selling in financials, power, IT, and oil and gas. Even while selling continuously, FPIs have been buyers in capital goods, autos, and auto components. In the context of elevated dollar and US bond yields, FPIs are unlikely to turn buyers in the market soon. Q2 results from financials, which are expected to be good, might restrain FPIs from selling in this segment,” he added.
Meanwhile, the Nifty 50 settled last week on a flat note at 19,654. It finished 9 out of the last 13 trading sessions in the red, losing 2.6% of its value, and from an all-time high of 20,222, the index is down nearly 2.8%. At current levels, the index is trading near a five-week low.
Going ahead, brokerage firm ICICI Direct Research anticipates a prolongation of consolidation in the broader range of the 19,800–19,300 range amid escalating geopolitical concern (over Israel and Hamas war).
However, the brokerage suggests that as long as the Nifty holds above last week's low of 19,300 over the next few sessions, there's potential for a rebound. Consequently, ICICI Direct Research emphasises that stock-specific activities are likely to take center stage, primarily driven by the ongoing Q2 earnings season.
"The Indian capital market is in a structural bull market. Historically, secondary corrections have been part of the structural bull market. We believe the recent healthy retracement has helped the index to cool off the overbought conditions. Thus, the focus should be on accumulating quality stocks amid ongoing global volatility," said the brokerage.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.