FIIs net sellers in last 3 months; foreign investors may continue to sell in short-term, long-term view remains positive: Experts

Foreign Institutional investors (FIIs) have been one constant factor contributing towards the volatility in the Indian equity markets for the past few months. FIIs have now remained net sellers in the Indian markets for the past three months. In November 2021, FIIs sold to the tune of Rs 39,901.92 crore in the Indian market and it was followed by Rs 35,493.59 crore selling in December 2021. Foreign Institutional investors sold the most In January 2022, when FIIs pulled out Rs 41,346.35 from the Indian markets.

Benchmarks Nifty50 and the Sensex have corrected 3.9% and 4.1 % respectively in the last three months as on February 7, 2022, showed data with Stock Edge, an app to analyse NSE, BSE data.     

The Indian markets corrected almost 2 per cent in the afternoon trade on Monday amid volatility. Santosh Meena, Head of Research, Swastika Investmart Ltd, said this weakness can be attributed to heavy selling by FIIs amid rising US bond yields and crude oil prices. "If we look at the profile of the stocks then there is a sharp cut in FIIs' favorite names such as HDFC twins, ICICI Bank, Infosys, Kotak Bank, Reliance, etc. We can expect large FIIs' selling figure in today's (Monday) trading session," said Meena.  

As FIIs continues to exert pressure on the Indian markets, experts are of the view that investors should concentrate on larger picture and do not be perturbed by quarterly flows by the FIIs. They are of the view that long-term view of the Indian markets remains positive despite relentless selling by FIIs.     

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"Focus on fundamentals on the ground"

Speaking of likely trend in light of hike in US Fed rates, Naveen Chandramohan, Founder & Fund Manager – ITUS Capital, says apparently FIIs have been net sellers over multiple years now. Most of the selling pressure has been absorbed well through a combination of domestic and retail investors, he said.   

"This bodes well for the Indian markets at large. I do hope that investors take a step back and look at longer term trends rather than react to quarterly trends of FII flows. The trend in 2022 is expected to show cyclicality in flows with at least 4 rate hikes priced in today. However, it would do investors great benefit to focus on the fundamentals on the ground rather than react to the flows," he said.  
 
"Expected Fed rate hike causing confusion and volatility"

Echoing Chandramohan's view, Sonam Srivastava, Founder at Wright Research, SEBI Registered Investment Advisor, said she expects the Indian markets to be strong in the long term, especially if the budget delivers on the promises, we will have good growth in the next year.

"US Fed rate hike is a big event spooking the global markets everywhere. There will be a concrete direction only when the definite hike schedule is announced. There is a lot of speculation, which is causing confusion and volatility," the analyst said.   

Sonam also pointed out that India is an attractive investment destination, and rate hikes are not necessarily harmful, as seen from 2004-07 and 2013-14. "I expect the strength to come back as the situation clarifies itself," she added.    

"FIIs will return to buying sooner or later"  
Vaibhav Agrawal, CIO & Founder for TejiMandi, too said economic growth in India is robust as highlighted by Budget. "FIIs may have been net sellers in the last couple of months, but India should be in an upcycle for the next 3-5 years. Also, the fact that India is the world's fastest-growing economy, sooner or later, FIIs should be buyers in India, "he added.   

"FIIs selling to continue further" 

Shrikant Chouhan, Head - Equity Research (Retail), Kotak Securities, said FIIs selling would continue further as the trends suggest that whenever Fed hikes rates, FIIs try to exit from emerging markets.  

"It is for the first time we are seeing huge buying support from retail investors and domestic institutions. Infact, domestic flows are one of the major drivers of Indian equities and valuations of Indian equities could remain on the higher side because of strong domestic flows," said Chouhan.   

Saying that Nifty earnings are strong, Chouhan said we expect net profits of the Nifty- 50 Index to grow 16.5% in FY23E and 12.6% in FY24E supported by strong rebound in economic activity and normalization of operating conditions across sectors.   
"We also believe that after sometime of selling, valuations will become attractive and FIIs will stop selling. But in the near-term we think their selling may continue," he added.