FPIs dump Indian equity on poll result uncertainty, favour ‘cheaper’ China
Foreign Portfolio Investors (FPIs) remained aggressive sellers of Indian equities in May, spooked by the uncertainty over outcome of the general elections. They now seem to be in ‘Sell India, Buy China’ mode due to cheaper valuations in Chinese and Hong Kong markets.
FPIs net sold Indian equities for ₹17,083 crore so far in the seven trading sessions this month, taking their overall outflows from equities this calendar year to ₹14,861 crore, data with depositories showed.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said that selling by FIIs in the cash market in May was much higher at ₹24,975 crore.
VIX AT PEAK
He said that the situation can change dramatically when clarity emerges 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,” Vijayakumar said.
The volatility index (Vix) —
The PE ratio in India is more than double that in Hong Kong, prompting FPIs to switch into ‘Sell India and Buy China’ mode also known as a fear gauge — touched 18.4 (the highest this year) this past week as benchmarks and broader markets saw sharp correction. So far in May, Nifty50 is down 2.5 per cent, falling 500 points.
Tarun Singh, MD of Highbrow Securities, said that the market volatility underscores the selling pressure, primarily aecting overvalued large-cap stocks. “The temperament of FPIs, largely speculative and focussed 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, the electoral outcome holds the potential to recalibrate foreign investor interest. This adjustment could foster a decrease in market volatility, anticipated to reflect in the Vix’s stabilisation in the nearterm,” he said.
Vijayakumar said that the divergence in institutional activity is becoming stark. “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.
EQUITY UNDERPERFORMANCE
Vijayakumar, however, maintained that FPIs are aggressively selling Indian equities not because of concerns relating to elections but due to the equity markets (Nifty down 2.06 per cent in the last one month) underperforming while Shanghai Composite and Hang Seng were outperforming by 3.96 per cent and 10.93 per cent, respectively. “The FPI strategy is to ‘sell India’, which is expensive, and ‘buy China’, which is very cheap, mainly through Hong Kong. The PE ratio in India is more than double that in Hong Kong,” he said.