Multiple factors drive FIIs to sell, but local flows keep markets resilient, say experts

Increase in the US bond yields, geopolitical situation, seemingly high valuations of the Indian markets, general risk averse sentiment or cutting down equity weight globally are the reasons for foreign institutional investors (FII) selling in the Indian markets, said experts.
Despite this selling, Indian markets have been resilient supported by local flows, they said.

“The US 10-year bond yields surged to a 16-year high on Thursday (last week), causing volatility to the equity market across the globe, adding to the jitters over the escalation of the west Asia conflict. The US 10-year treasury yield touched 4.98 per cent, highest ever since 2007,” Tanvi Kanchan, Head-Corporate Strategy, Anand Rathi Shares and Stock Brokers told IANS.

“The jump in yield was also due to expectations of the US Federal keeping interest rates on restrictive levels to help tackle and cool off inflation numbers. With the interest rate differential between US and India narrowing further, we witnessed a considerable outflow of FII's from Indian equities,” Kanchan added.

“After being sellers of Rs 14,768 crore in September, foreign portfolio investors (FPI) have been sellers of Indian equities of Rs12,146 crore in Octobertill October 20, 2023,” Deepak Jasani is the Head of Retail Research, HDFC Securities Ltd told IANS.

“Some FPIs have taken the decision to trim their India exposure due to seemingly high valuations of Indian markets, general risk averse sentiment or reducing equity weight globally,” Jasani said.
According to him, FPIs in the September 15-30 period have bought stocks in the Auto/Auto Ancillaries, Capital Goods, Telecom and IT sectors while being sellers in Construction, FMCG, Finance, Oil & Gas and Power sectors.

“During the September 2023 quarter, FPIs boosted their investments in 130 Nifty 500 stocks. Five star Business Finance, HDFC Bank, GMM Pfaudler, Patanjali Foods, Amber Enterprises and Birlasoft are some companies where there has been a remarkable rise in their holdings,” Jasani said.

On the other hand, the FII/FPI's selling has not resulted in domestic investors panicking to cash out their investments.

According to Jasani, domestic institutions apart from investing their own funds are dependent on flows from retail and high net worth individual (HNI) investors for deploying in the markets.
So far these categories of investors have not panicked as their experience of exiting in recent falls has not been good (markets recovered more than the falls in a short period of time), Jasani said.

The domestic institutional investors have been net buyers and continue to have their allocation in Indian equity, looking at the long-term sticky book via systematic investment plan (SIP), said Kanchan.

“Only when the 12-18 month outlook of the markets seem to have been dented due to some large global or local event, will these investors panic and redeem their investments that could lead to selling by local institutions,” Jasani remarked.