FPIs turn cautious, end buying spree amid market volatility
Foreign Portfolio Investors (FPIs) turned jittery and went on a selling spree this past week, reversing the strong net buying seeing seen in first two weeks in December. However, the net FPI investments in December remained in positive territory as of December 20 at ₹21,789 crore, depositories data showed.
The latest monthly reading (upto December 20), however is in contrast to the heavy offloading in equities by these investors in the months of October and November when net outflows stood at ₹21,612 crore and ₹94,017 crore respectively.
So far this calendar year, FPIs inflows stood at mere ₹6,770 crore.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that the sudden change in FPI strategy from buying to selling (in December) has impacted markets.
In the early days of December FPIs were consistent buyers; they bought equity for ₹14,435 crore in the cash market till December 13. “But they have turned into big sellers after that. For the week ended 20th December FIIs have sold equity for ₹15,828 crore in the cash market, selling on all days. Rising dollar ( dollar index above 108) and steady rise in the US 10-year bond yields to 4.5 per cent contributed to the FPI selling”, he said.
India-specific issues like slowing growth concerns and flat corporate earnings in Q2 also contributed to the FPI selling.
“The strength of the US economy, good corporate earnings growth and strong dollar are factors favouring the US.
FPIs will turn buyers when we have news of GDP growth and earnings growth rebound. Q3 data can be mildly positive”, Vijayakumar said.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said that uncertainty among foreign investors with respect to investing in the Indian equity markets has been evident in the flow trend over the last couple of weeks.
“After two weeks of net buying, they turned net sellers last week and continued to sell into the Indian equity markets this week as well. Although the quantum hasn’t been significant, indicating a wait and watch approach,” he said.
This week they sold net assets worth $114 million as against the net outflow of $199 million last week.
“Their cautious approach was largely on the back of US Fed meeting that was held this week and uncertainty surrounding its outcome and future course of action.
The outcome however was not very promising. While the US Fed cut interest rates by 25 bps making it the third rate cut this year, it indicated a much lesser chances of rate cuts for next year thus denting investors sentiment and sparked broad-based selling, thereby jolting the markets globally,” Srivastava said.
In addition to this, rich valuation, lower than expected corporate earnings for the September quarter, expectation of a subdued corporate results for the December quarter as well, high inflation prints, lower than expected GDP numbers and depreciating rupee doesn’t paint a very encouraging picture to uplift investor sentiments, he added.
“Also there continues to be ambiguity around the commencement of interest rate cut cycle in India which could also be keeping investors on the sidelines,” Srivastava said.