FPI selling contributing to the volatility in Indian markets

Despite relentless selling pressure from Foreign Portfolio Investors (FPIs), the Indian markets surged to all-time highs last Friday. The BSE Sensex hit a new peak, while the Nifty 50 index closed positively at 23,267.75, marking a substantial gain of 446.35 points or 1.96 percent, reaching a high of 23,320.20.

However, FPIs have remained net sellers in the Indian markets for the third consecutive month in June, offloading equities worth over Rs 14,794 crore so far, according to data from the NSDL (National Securities Depository Limited) website. This trend follows a similar pattern from the previous month, heightening volatility in Indian markets.

Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, attributes FPI selling to perceived overvaluation of Indian stocks and a shift towards cheaper markets, notably Chinese stocks listed on the Hong Kong Exchange, which have become more attractive.

In May, FPIs sold equities worth Rs 25,586 crore, continuing a sustained period of excessive selling in the cash market. For the year 2024, FPIs have divested equities worth Rs 38,158 crore, with significant activity observed in the primary market route alongside selling through exchanges.

Market stabilization is gradually occurring post-election volatility, with experts underscoring the high valuations of Indian stocks, especially in the broader market, as a driver for further FPI selling. The upcoming budget will provide policy direction, prompting market adjustments.

FPIs have been net sellers since April, with geopolitical crises in the Middle East prompting significant withdrawals from portfolios. Despite being net buyers in the first three months of the year until mid-April, FPIs cumulatively sold stocks worth Rs 8,671 crore by month-end.

Overall, FPI selling is contributing to ongoing market volatility. The perception of high valuations in Indian equities, coupled with attractive valuations in other markets such as China, is driving this trend. As FPIs realign their portfolios in response to global market conditions and geopolitical shifts, Indian markets are expected to react accordingly.

(With inputs from agencies.)

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