FII outflows cross Rs 17,000 crore in 9 days, longest selling spree in 8 months; what next?

Foreign institutional investors (FIIs) sold Indian shares worth Rs 17,112 crore in nine consecutive trading sessions till September 29, marking their longest selling spree since mid-January, according to provisional exchange data. On the flipside, domestic institutional investors (DIIs)—which remained net buyers in eight out of the nine days—made net purchases to the tune of Rs 10,082 crore during this period, according to the data. 

Domestic equity benchmark Nifty shed 554 points, or 2.7 per cent, during the nine-day period, while the narrower Sensex index lost 2,010 points, or 3 per cent, and the high-beta Nifty Bank gauge gave up 1,647 points, or 3.6 per cent. 

Financial and IT shares were at the forefront of the sell-off, amid persistently weak signals from global markets amid fears of higher-for-longer benchmark interest rates and surging crude oil prices. 

When it comes to institutional fund flows, what does the road ahead look like for Dalal Street?

Market expert Ajay Bagga expects the outflows to continue on Dalal Street for at least a month. "Once the December 13 Fed meeting is out of the way and peak rates are formally called, the focus will move on rate cuts of the next year, the US dollar will start weakening and the flows to emerging markets will resume. The key point is: At what point do FIIs see that value?" he told Zeebiz.com. 

The US central bank is scheduled to meet on October 31-November 1 and December 12-13, the last two of its eight policy reviews of the year. 

"Right now, if you are making dollar returns of 5 per cent in Treasuries or money market funds, there is little incentive to take equity risk in emerging markets, which also have a currency depreciation risk. Hope to get clarity by November/December and the flows (inflows) to resume thereafter. The national elections are another issue, that may see flows being paused till the results in end-April," Bagga said. 

In all of September, FIIs took out Rs 26,692 crore from Indian shares while DIIs brought in 20,313 crore, a second straight month of outflows and inflows, respectively. In August, FIIs withdrew a net Rs 20,621 crore, after remaining net buyers for five months in a row, while DIIs infused Rs 25,017 crore. 

International oil benchmark Brent futures crossed the $97 per barrel mark in intraday trade last week, a level last seen in October 2022. Any surge in oil rates inflates the trade bill for India, which meets more than four-fifths of its oil demand through imports. Meanwhile, the dollar index—which gauges the greenback against six peers other than the rupee—reached 10-month highs after the Fed's hint at further hikes in interest rates spooked global markets already roiled by rapid increases to fight inflation. 

According to US central bank forecasts released last week, a majority of policymakers see the benchmark US interest rate finishing 2023 at 5.6 per cent, which implies one more interest rate hike during the remainder of the calendar year. They also anticipate an end-of-2024 policy rate of at least 5.1 per cent, half a percentage point higher than projected earlier.

The US central bank has already hiked the key lending rates by 525 basis points, from 0.25-0.50 per cent to 5.25-5.50 per cent, between March 2022 and July 2023. 

Back home, the RBI raised the repo rate—the key interest rate at which it lends short-term funds to commercial banks—by a total 250 points to 6.5 per cent between May 2022 and February 2023. 

Major central banks around the globe have raised interest rates sharply in a bid to tame post-COVID inflation but only just as much that doesn't come in the way of economic growth.

The RBI is slated to conduct bi-monthly reviews on October 4-6 and December 6-8. 

With inputs from agencies