Heavy FII selling in India to taper off soon, say market watchers

The heavy selling by the foreign institutional investors (FIIs) in India is set to taper off soon as valuations of large-caps have also come down from the elevated levels, market watchers said on Saturday. FIIs have been buying IT stocks and this has been imparting resilience to IT stocks. Banking stocks have been resilient despite FII selling, mainly due to domestic institutional investor (DII) buying, said experts.

The relentless selling by FIIs continued in November. After selling equity for Rs 113,858 crore through exchanges in October, FIIs have sold another Rs 41,872 crore of equity through exchanges this month (till November 22). The trend of FII buying through the primary markets also continued with Rs 15,339 crore worth of buying in November.

The total FII selling through the exchanges for the period October 1-November 23 stands at Rs 155,730 crore.

“This is the kind of selling that happens in a year when FIIs are in selling mode,” said Vinod Nair, Head of Research, Geojit Financial Services.

Three key factors led to this massive selling by FIIs. One, the 'Sell India, Buy China' trade and the second, concerns surrounding FY25 earnings.

"The third factor is the 'Trump trade.' Of the three, the 'Sell India, Buy China' trade is over. The Trump trade also appears to be on its last leg since valuations have reached high levels in the US," Nair elaborated, adding that therefore, the FII selling in India is likely to taper off soon.

According to Rohit Agarwal, CEO, Funds Business, Dovetail Capital, the recent SEBI measures enhance market stability and play a crucial role in safeguarding investor interests, ensuring a more resilient derivatives market.

"Limiting weekly expiries to a single index on NSE and BSE could encourage a shift in trading volumes towards GIFT City, which still offers a wider range of weekly options. From an FPI perspective, this creates an attractive opportunity for those seeking flexibility in trading strategies," he mentioned.

While some of the selling by FIIs in the secondary market is being counterbalanced by buying in the primary market - through large initial public offerings like those from Swiggy and Hyundai, it is expected that FIIs will reduce their selling as we near the end of the calendar year.

"Fresh allocations or significant investments are likely to occur once there is greater clarity regarding the Trump administration's policies," said Vipul Bhowar, Senior Director, Listed Investments, Waterfield Advisors.

The upcoming large IPOs may briefly increase investments in the primary market, but ongoing interest will depend on macroeconomic stability and corporate earnings performance, said experts.