FIIs Exit D-Street With Hefty Sell-Offs Amidst Market Underperformance

In recent market movements, Foreign Portfolio Investors (FPIs) have taken a backseat in the Indian stock market, liquidating shares to the tune of Rs 17,082 crore in May. However, the broader scale of this divestment is underscored by the even larger capital withdrawal from Foreign Institutional Investors (FIIs), who have pulled out a whopping Rs 24,975 crores from the cash market during the same period.

Such a stark difference in the investment patterns of FIIs, who are on a consistent selling spree, contrasts with the bullish behavior of Domestic Institutional Investors (DIIs), who have been actively acquiring stocks.

The net result of these contrasting strategies is a tally where FIIs have divested stocks worth Rs 24,975 crores while DIIs have boosted their holdings by Rs 19,410 crores throughout the month of May.

Analysts Shed Light on FII Selling Rationale

Unearthing the reasons behind the FII sell-off, market experts point to factors beyond election-related worries. India's stock market performance relative to its peers plays a key role.

"The FII exodus isn't solely predicated on the apprehension of electoral outcomes but is also a reaction to India's lagging market performance, especially when pitched against the gains seen in China's and Hong Kong's bourses," remarks Dr VK Vijaykumar, Chief Investment Strategist at Geojit Financial Services.

In illustrating this point, comparative data shows that while the Nifty index fell by 2.06 per cent, the Shanghai Composite and Hang Seng indices have soared by 3.96 per cent and 10.93 per cent, respectively. Consequently, FPIs are pivoting towards markets like China, which offer relatively inexpensive valuations, in particular through Hong Kong, which enjoys a price-to-earnings (PE) ratio significantly lower than India's.

This phenomenon, dubbed as the 'Sell India, Buy China' trend, is expected to continue to add to the pressures faced by the Indian market.

Future Market Dynamics Post Elections

Speculation suggests that clarity on election results could pivot market trajectories significantly.

If the election outcomes resonate with market expectations, a brisk influx of purchases from DIIs, retail investors, and High Net-worth Individuals (HNIs) may counterbalance the selling from FIIs, leading to a potential rally in the stock market.

Expectations and Predictions Ahead

Vinod Nair, Head of Research at Geojit Financial Services, theorizes that the current market downtrend is driven by India's higher market valuations and the hazy outlook due to the elections, compounded by a lower voter turnout. With these factors at play, he anticipates the trend to linger in the near term.

"As we approach a week rich with data releases, including CPI figures from India and the US, GDP insights from Europe and Japan, as well as statements from the FED chair, these elements are likely to sway investor sentiment. Moreover, the forthcoming quarterly results will also be influential," says Nair.

Arvinder Singh Nanda of Master Capital Services hints at the potential trajectory for the Nifty index, which has hovered between 21,750 to 22,800 over the past months. A decisive dip below the support level of 22,300 hints at further declines, although an imminent correction could be on the cards.

FIIs, DIIs, Stocks