In a notable trend of foreign portfolio investors (FPIs) continuing to withdraw funds, FPIs have sold off an additional ₹5,729 crore from Indian equities on Tuesday. This marks the seventh consecutive trading session of selling, bringing the cumulative withdrawal to a staggering ₹55,742 crore over the past week. The peak of this sell-off occurred on October 4, when FPIs divested ₹15,506 crore, as reported by Trendlyne data.
The Role of Domestic Institutional Investors (DIIs)
Despite the persistent selling by FPIs, domestic institutional investors (DIIs) have played a critical role in mitigating the impact of this sell-off. Over the same period, DIIs have actively purchased Indian shares worth ₹60,206 crore, showing strong support for the Indian equity market.
Market Dynamics and Global Influences
On Tuesday, FPI selling showed signs of moderation, a shift attributed to profit booking in Chinese stocks. Dr. V K Vijayakumar, Chief Investment Strategist from Geojit Financial Services, noted that the recent ‘Sell India, Buy China’ strategy adopted by FIIs seems to be waning. This is indicated by the decreasing sell numbers from FPIs alongside profit bookings observed in Chinese equities, particularly those listed in Hong Kong.
“The ongoing tussle between FIIs and DIIs has often favored the latter in this ongoing bull rally,” said Vijayakumar. “While FIIs express concerns over valuations, DIIs continue to invest, backed by their substantial financial capabilities, which are becoming even stronger.” He also mentioned that the recent electoral victories of the BJP in Haryana serve as a morale booster, instilling confidence in market participants.
Amidst this scenario, Vijayakumar advised investors to focus on accumulating high-quality, fairly valued blue-chip stocks, particularly in the financial and IT sectors, which have shown resilience and growth potential despite external market pressures.
FPI Selling: Causes and Effects
The ongoing FPI selling in Indian equities seems influenced by multiple factors, including heightened geopolitical tensions, particularly between Iran and Israel, which have contributed to a surge in crude oil prices. Rising oil prices can lead to inflationary pressures, thereby affecting investor sentiment. In addition, the elevated valuations of Indian stocks have also been a concern for FPIs.
In a bid to revitalize its slowing economy, China has rolled out comprehensive economic support measures. These include reductions in banks’ reserve requirements and key lending rates, prompting FPIs to redirect funds toward Chinese equities in anticipation of a possible economic recovery and improved earnings from Chinese firms.
The Impact on Chinese Markets
Chinese markets recently experienced a significant downturn, with stocks snapping a ten-day winning streak. The Shanghai Composite index experienced a dramatic drop of 6.6%, and the blue-chip CSI300 index fell by 7.1%, marking their largest single-day losses since February 2020.
Following a steep decline of over 9% on Tuesday, Hong Kong’s Hang Seng Index also registered a 1.38% decrease. These market movements were exacerbated by a disappointing news conference in Beijing post-Golden Week, which failed to announce new stimulus measures, leaving traders disillusioned.
Disclaimer: The opinions and recommendations outlined in this article are the views of individual analysts and do not reflect the opinions of our publication. It is advisable for investors to consult certified experts before making any investment decisions.
