FPIs dump Indian equities in May amid election uncertainty
Equity outows of FPIs touch ₹17,083 crore so far in May; Market volatility rises with the fear gauge India VI◣ touching 18.4, its highest level this year
Foreign Portfolio Investors (FPIs) have turned aggressive sellers in Indian equities in May 2024, largely spooked by the uncertainty over the outcome of general elections. They now favour the ‘Sell India, Buy China’ trade due to cheaper valuations in Chinese and Hong Kong markets, said market analysts.
FPIs have net sold Indian equities to the tune of ₹17,083 crore so far in the seven trading sessions in May 2024, taking their overall outows in equities from India this calendar year to ₹14,861 crore, data with depositories showed.
V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said FIIs’ sales in the cash market in May was much higher at ₹24,975 crore.
VI◣ at peak
He said that the situation could change dramatically once clarity emerged on the election outcome. “If the election results turn out to be favourable from the market perspective, aggressive buying by DIIs, retail and HNIs can push the market sharply up,” Mr. Vijayakumar noted. The volatility index (VI◣) — also known as a fear gauge — touched 18.4 (the highest in 2024) this past week as equity benchmarks saw sharp corrections in both benchmark indices and broader markets. So far in May, Nifty50 has slid 2.5%, falling about 500 points.
Tarun Singh, MD of Highbrow Securities, said market volatility, reected by the India VI◣, underscores the selling pressure, primarily aªecting overvalued large-cap stocks.
“The temperament of FPIs, largely speculative and focused on ephemeral gains, overlooks the broader, long-term growth narratives of economies like India or Hong Kong. Despite current valuations rendering India’s market relatively expensive, forthcoming electoral outcomes hold the potential to recalibrate foreign investor interest. This adjustment could foster a decrease in market volatility, anticipated to reect in the VI◣’s stabilisation in the near-term,” Mr. Singh said.
Mr. Vijayakumar said that the divergence in institutional activity is becoming stark this month.“FIIs have turned sustained sellers and DIIs have turned sustained buyers in all trading days of this month, so far, with cumulative FII selling of ₹24,975 crore and cumulative DII buying of ₹19,410 crore,” he said.
Mr. Vijayakumar added FPIs were aggressively selling Indian equities mainly due to Indian equity markets underperforming while Shanghai Composite and Hang Seng were outperforming by 3.96% and 10.9%, respectively, in the last one month. “The FPI strategy is to sell India which is expensive and buy China which is very cheap, mainly through Hong Kong,” he added.
(The writer is with The Hindu businessline)