FII outflow reaches Rs 21,465 crore in 15 days. Do investors need to worry?

As foreign institutional investors continue to take out money from Indian shares, Dalal Street is abuzz with talk whether they will switch to buying in a big way anytime soon. As of Wednesday, FIIs have net sold Indian shares worth Rs 21,465 crore in 15 straight sessions -- their longest and heaviest selling spree since June 2022, according to provisional exchange data. Domestic institutional investors, however, have brought some cheer to the market, making net purchases to the tune of Rs 19,306.7 crore in the 15-day period. 

This is in stark contrast to persistent buying by FIIs in 2021 that took the benchmark indices to a chain of record highs in a near one-way rally that lasted 18-odd months.   

Editor's Take: Zee Business Managing Editor Anil Singhvi's view

Concerns remain among investors about foreign fund outflows, said Zee Business Managing Editor Anil Singhvi. "FIIs are probably selling due to redemption pressure or their view about the markets from  a longer-term perspective, though there is nothing wrong on the domestic and global fronts," he said in Editor's Take. 

There is a general lack of enthusiasm in the market, Singhvi said. "The market has failed to sustain gains after the recent gap-up openings. This suggests that FIIs are ready to sell at the higher levels," he pointed out. 

The inflow from retail investors has also slowed down, he pointed out. 

January could be a second straight month of monthly FII outflow for the Indian market, according to exchange data. In December, they withdrew shares worth Rs 22,546.3 crore, and made net buys of Rs 14,231.1 crore in the previous month. 

Prior to November, the only other month of net FII inflow for the Indian market was August, the data show.   

Analysts say the future course of FII flow may depend on a number of factors.  

"Union Budget is going to be an important even for the market. There is fear that long-term capital gains tax structure will be change... Secondly, the Fed has to pause interest rate hikes before a complete reversal (rate cuts)... The pause may come as soon as a week or 10 days," AK Prabhakar, Head of Research at IDBI Capital Markets, told Zeebiz.com. 

"For now, FIIs are perhaps finding China more attractive," he said. But with some appreciation in the rupee, which will give a lot of leeway to investors to come in, India may become more attractive by March or April," Prabhakar said. 

Indian equity benchmark Nifty50 has lost 1.5 per cent of its value in the 15-day period.

"If Nifty declines by another two per cent, valuations will become attractive and FIIs will turn buyers. Domestic investors too will buy aggressively since they are aflush with funds," VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, told Zeebiz.com. 

"FIIs are selling in India and buying in other Asian markets like China, Hong Kong, Korea and Thailand where valuations are much lower," he said. 

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