Indian markets have witnessed aggressive selling by Foreign Portfolio Investors (FPIs) in May, with a staggering amount of Rs 17,082 crores as per data by National Securities Depository Limited.

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The selling pressure in the market extends further with Foreign Institutional Investors (FIIs) unloading a much higher sum of Rs 24,975 crores in the cash market. This divergence in institutional activity has become notably prominent this month, with FIIs consistently selling stocks and Domestic Institutional Investors (DIIs) avidly buying them up. Cumulatively, FIIs have sold stocks worth Rs 24,975 crores, while DIIs have purchased stocks amounting to Rs 19,410 crores throughout the month.

The data indicates that the broader market has witnessed sharper declines, suggesting that High Net-worth Individuals (HNIs) and retail investors are opting to cash in some profits and adopt a cautious stance, possibly in response to uncertainties surrounding the ongoing elections in India.

However, 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.

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