Volatility In FII Trading Amid Uncertainty

Several factors have led to the selling activity by FIIs in the Indian stock market -- weak earnings, high valuations compared to other markets, and global economic influences such as rising US bond yields

New Delhi: After their heavy selling so far, it is expected that the foreign institutional investors (FIIs) had reduced their selling marginally in the past couple of weeks. However, there’s sudden surge in their offloading on Tuesday. It’s due to fresh allocations or significant investments by foreign funds, observe market analysts. However, FIIs still cross their fingers on their priority on global marets until there is greater clarity regarding Donald Trump administration’s policies, market experts said. The domestic stock markets was under pressure for the last two months owing to FII offloading, tepic Q2 earnings, strengthening US dollar, etc.

According to the latest data, foreign funds’ net selling was Rs1,403 crore on Monday, lower than the average daily selling of Rs3,800 crore since October. However, FII seeling rose to Rs3,411.73 crore on Tuesday.

Several factors have led to the selling activity by FIIs in the Indian stock market -- weak earnings, high valuations compared to other markets, and global economic influences such as rising US bond yields.

“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,” said Vipul Bhowar, Senior Director (listed investments), Waterfield Advisors.

Fresh allocations or significant investments are likely to occur once there is greater clarity regarding the Trump administration’s policies.

“FPIs this calendar year have been reducing their weightage in mature sectors when growth would be closer to our nominal GDP and allocating capital to high-growth businesses. For example, in the financial sectors, FPIs have been increasing allocation in Capital Market themes like Asset management, exchanges, and healthcare,” said Bhowar.

FPIs turned net sellers in October, withdrawing $11.5 billion (in equity, debt and hybrid categories) compared to an inflow of $11.2 billion in September.

The equity market saw a record-high net outflow of $11.2 billion (vs an inflow of $6.9 billion in the previous month) in response to the rise in Chinese equities following the announcement of aggressive fiscal stimulus measures, according to the latest Crisil report.

Domestic financial conditions in India are in the comfort zone despite the FII outflows. The new framework established by the RBI and the Sebi for reclassifying foreign FPIs as FDIs is expected to positively impact foreign inflows into India, said experts. This framework provides greater flexibility for foreign investors and reduces barriers to entry.

“With the new regulations, FPIs can hold larger stakes in Indian companies without the need for immediate divestment. This creates opportunities for increased foreign investment, particularly in mid-cap companies, and helps attract long-term capital,” said Bhowar.