Foreign portfolio investors (FPIs) continued their selling spree in October after turning net sellers in September. As per the NSDL data, FPIs have sold equities to the tune of ₹5,994 crore in October so far after pulling out ₹7,624 crore from the Indian equities in September.
This comes after 2 strong months of FPI buying, where they bought ₹4,989 crore and ₹51,205 crore worth of Indian equities in July and August, respectively. August saw the highest FPI inflows in the current calendar year. These were the only 2 months that witnessed FPI inflows in 2022 so far.
Overall in 2022 so far, FPIs have sold Indian equities worth ₹1.74 lakh crore. Before turning buyers in July, FPIs pulled out a record ₹2,17,358 crore from the equity market between January and June.
However, the selloffs in September and October are still on the lower end compared to the rest of the 2022 months. Currently, June has witnessed the highest outflows in the year worth ₹50,203 crore.
The outflows in the month of September and October can be attributed to fears of a recession in major economies, coupled with monetary policy tightening globally and consistent high inflation.
The volatility in Indian markets as well as the depreciation of the rupee and strengthening of the dollar further added to the outflows. It is important to note that the majority of selling from FPIs was seen in the second half of September.
However, analysts believe FPI outflows in the near times will not reach June highs. While the outflows may continue in October, the intensity will not be very high as to impact the markets in a negative way, they added.
As per the experts, the global environment continues to be weak for markets with concerns of a US recession and possible hard landing rising. Clarity is yet to emerge on this.
Nishit Master, Portfolio Manager, Axis Securities PMS said, "We believe, as long as Rupee depreciation is under control, we will not see a very high and prolonged period of FPI outflows. In the medium to long term, we believe India will attract FPI allocation, as India remains by far the fastest-growing major economy in the world, and in an environment where growth remains the key concern globally, money will flow to economies witnessing relatively strong growth."
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services also agrees.
"It is important to note that FII selling is getting completely absorbed by DII and retail buying, which is responsible for India's outperformance compared to global peers. So even if FIIs continue to sell on a rising dollar and US bond yields, that is unlikely to have a significant impact on markets," he stated.
But, Vijayakumar cautioned that global sentiments have turned more negative with IMF downgrading global growth to 2.7 percent in 2023 and the market concerns surrounding financial stability in the UK.
"An important trend in the market is that FIIs are hugely net short in the derivatives market while retail and HNIs are long. If the market mood suddenly turns there can be massive short covering in the market leading to a sharp rally," he warned.
Even though the sentiments are negative long-term investors can slowly accumulate high-quality stocks in financials, capital goods, telecom and IT, Vijayakumar advised investors.
According to an Ambit Capital report, the highest FPI outflows in September were witnessed in BFSI ($0.86 billion) followed by IT ($0.64 billion) and oil and gas ($0.5 billion).
Meanwhile, inflows in the previous month were seen in consumer space ($0.21 billion), Media & Telecom ($0.13 billion), also in Capital goods.