FII selling continues for record continuous 37 days: Will they make a comeback any sooner?

After the 'Sell India buy China' strategy amid the China stimulus news, the Indian equities continued to face foregin institutionak investors (FIIs) exodus. The outflow though has lessened after October's FII outflow of Rs 1,14,445 crore, it stands at Rs 39,668.98 crore so far in November 2024.

Shivani Nyati, Head of Wealth at Swastika Investmart on the factors resulting in the outflow by FIIs said:

Several factors are driving this trend. Firstly, there has been a shift of funds from India to China. Secondly, the combination of perceived safety and growth opportunities in the US market, along with rising US bond yields and a strengthening dollar index, has influenced investor decisions. Additionally, earnings disappointments from India Inc. have added to the negative sentiment.

What the FII sell-off has resulted in?

As per analysts the impact is not that crucial as the recent exodus by FIIs in Indian equities is only a per cent of their total holding in Indian equities and hence the structural impact remains limited.

Atul Parakh, CEO of Bigul said, "The current selling pressure, which has triggered an 8-9 per cent correction in benchmark indices, is primarily driven by rotation towards Chinese markets and disappointing Q2FY25 earnings where growth estimates have been revised downward from 12% to 6 per cent."

However, India's market resilience is underpinned by its 83 per cent domestic ownership - the highest among emerging markets - and robust retail participation evidenced by record-high SIP inflows of Rs 25,300 crore in October 2024. The selling intensity has moderated in November's second week to Rs 2,500 crore from Rs 20,000 crore in the first week, suggesting potential exhaustion of the selling trend.

While near-term flows may stabilize as we approach the traditional year-end rally period, the outlook remains contingent on earnings recovery and global risk sentiment, warranting a balanced investment approach with opportunities to increase allocation on market corrections, added the expert.

Conversely Nyati added that The recent news surrounding the Adani Group may create short-term panic among investors, potentially leading to a panic bottom in the market. However, it is important to note that the actions of a single group are unlikely to alter the long-term bullish outlook of FIIs towards India.

I believe FIIs are likely to return to the Indian equity market after a meaningful price correction, as the broader growth story of India remains intact, the expert noted.