FIIs pull out Rs 24,975 crore from D-Street so far in May; what next?

Stock market today: Foreign Portfolio Investors (FPIs) aggressively sold shares in the Indian stock market in May, totaling Rs 17,082 crore. The selling pressure in the market continues, with Foreign Institutional Investors (FIIs) offloading a significantly larger sum of Rs 24,975 crores in the cash market.

This discrepancy in institutional behaviour has become particularly noticeable this month, with FIIs constantly selling stocks and Domestic Institutional Investors (DIIs) eagerly purchasing them. 

Cumulatively, FIIs have sold stocks worth Rs 24,975 crores, while DIIs have purchased stocks amounting to Rs 19,410 crores throughout the month.

According to market experts and analysts, the FIIs' selling isn't merely driven by election concerns but also by India's underperformance compared to other markets.

"FIIs are selling not because of concerns relating to elections but because India is underperforming while China and Hong Kong markets are outperforming," said Dr VK Vijaykumar, Chief Investment Strategist, Geojit Financial Services.

Over the past month, while the Nifty has declined by 2.06 per cent, China and Hong Kong markets have displayed remarkable growth, with the Shanghai Composite and Hang Seng indices surging by 3.96 per cent and 10.93 per cent respectively.

The contrast in performance of Asian markets has led to a strategic shift in FPI investment, favouring selling in India, which is perceived as relatively expensive, and buying in China, particularly through Hong Kong. Notably, India's price-to-earnings (PE) ratio stands at more than double that of Hong Kong.

The ongoing trend of 'Sell India, Buy China' adopted by FPIs is anticipated to continue exerting downward pressure on Indian markets.

The experts point out that this scenario could witness a significant turnaround with the emergence of clarity on the election outcome.

If the election results align favourably with market expectations, aggressive buying from DIIs, retail investors, and HNIs could swiftly propel the market upward, countering the prevailing selling pressure from FIIs.

What lies ahead for the market? 

Vinod Nair, Head of Research, Geojit Financial Services believes that the decline in the domestic market throughout the week stems from the domestic market's premium valuation and concerns surrounding the elections due to a lower voter turnout. 

He expects the current trend in the domestic markets to continue in the short term due to election-led uncertainties. 

"In the data-hectic week ahead, investor attention will be focused on the release of India and US CPI data, Europe and Japan’s GDP releases, and the FED chair speech. Furthermore, the next set of Q4 results will also attract market sentiment," Nair said.

As per Arvinder Singh Nanda, Senior Vice President, of Master Capital Services Ltd., the Nifty index has been trading within a broad range of 21,750 to 22,800 over the past few months. With a decisive break below the immediate support at 22,300 observed on Thursday, the Nifty is anticipated to experience further downward movement in the short term. Given historical patterns, there's a likelihood of a minor upward correction from this crucial support level in the upcoming trading sessions. The immediate resistance level is pegged at 22,250. 

As per Dr VK Vijaykumar, investors can wait for clarity to emerge on the political front. Meanwhile, long-term investors can slowly accumulate high-quality large caps, particularly those in banking and automobiles that have delivered good Q4 results.

(With inputs from agencies.)

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