FIIs selling exceeds 2008 global financial crisis outflow, fails to dent benchmarks much as DIIs buying surprise

Foreign Portfolio investors (FPI) have been on the longest selling spree as the outflows have surpassed global financial crisis (GFC) of 2008.However, surprisingly, it has failed to impact benchmark indices much due to aggressive buying by Domestic Institutional investors (DIIs). 

"The relentless selling by the FPIs is not having much of an impact on the markets now as revealed by the 331-point rise in Nifty when FIIs sold equity worth Rs 4800 crores," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, had said on Thursday.   

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Short squeeze in an oversold market can cause sudden reversal in market trends, he said . "High quality financials present good buying opportunities now. The down risk is limited," added Vijaykumar. 

As per ICICI Securities, FIIs selling has exceeded GFC outflow, but the impact is relatively low due to DIIs, who have been net buyers since March 2021. On the contrary, Overseas investors extended selling spree for the sixth straight month and pulled out a net Rs 45,608 crore from the Indian markets between March 2-11, showed data with the depositories.  

The FPIs have selling have largely concentrated around IT, banks, NBFC and industrials over the past 12 months. 

As per the data, FPIs pulled out Rs 41,168 crore from equities, Rs 4,431 crore from the debt segment and Rs 9 crore from hybrid instruments, taking the total net outflow between March 2-11 to Rs 45,608 crore, said a PTI report.   

FPI equity assets see a a dip of 200bps from the Mar’21level of 20% 

AS per the brokerage, aggregate FPI equity assets stood at Rs45.5trillion as of end-Feb’22, which translates into18% holding of aggregate listed Indian equities (Rs 252 tn) and is a dip of 200bps from the Mar’21level of 20% 

"We are witnessing consistent buying by domestic investors in the face of unprecedented selling by FPIs during rare and extreme fear-inducing events seen over the past few years (covid pandemic and global brinkmanship due to the Russia-Ukraine conflict).  This is a clear positive surprise and heralds the structural deepening of domestic savings into equities in India, "said ICICI securities in its report.   

Such behaviour of aggressive buying during declining stock prices by domestic investors should result in improved long-term outcomes for their portfolios vs buying in a high-optimism phase of the market, and thereby setting off a virtuous cycle, it underlined, adding, the corollary to the foregoing is that expectations of finding huge bargains in stock prices seen in previous bouts of FPI selling will be belied going ahead. 

"During the interest rate hike cycle, we have seen FII’s flocking from emerging markets (EMs). This combined with the geopolitical tensions, there has been an overall rise in equity risk premiums in the EMs. However, as the dust settles and capital gets reallocated from Russia, we believe Indian equity markets would be the destination for the FII’s going forward," said Divam Sharma, Founder at Green Portfolio on trends for FIIs amid the US Fed rate hike possibility and Russia-Ukraine war.   

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