Putting pressure on the domestic equity market indices, FIIs have been net sellers on most days this month. Monday’s selling alone was around Rs 6,792.8 crore, shows provisional data.
Despite strong buying support from domestic institutional investors, Nifty is still down 2.5% this month with several bluechips like
, and left bleeding in double-digits. Stocks in the broader market and banks have been among the worst hit.
Why FIIs are selling Indian stocks
In the beginning of the month, FIIs clearly saw a better opportunity in Chinese stocks where the reopening of the economy after three years spurred revival hopes. Many FIIs were also not comfortable with Nifty holding above the 18,000 mark and above historic valuation levels.
On the other hand, Chinese equities were relatively cheaper following widespread sell-off in the last 3 years. Hang Seng index, a gauge of offshore Chinese stocks listed in Hong Kong, lost 3.4% in 2020, 14% in 2021 and another 15% in 2022.
“It is widely acknowledged that India remains at risk tactically because of the need to fund increased positions in China,” Jefferies’ global head of equity strategy Christopher Wood said. However, he remains confident that India remains the best long-term equity story in Asia and emerging markets.”FPI strategy in January has been selling in India and buying in relatively cheaper markets like China, Hong Kong, South Korea and Thailand. Shorting India has been profitable for FPIs this month,” said Dr V K Vijayakumar of .
A part of the FII selling since last Wednesday has also been attributed to a bulk of the selling by FIIs have been in financials and IT stocks in the first fortnight of the month when buying was seen in metals and mining stocks.
Will FIIs continue selling?
In the last 11 years, the FII flow has been positive in February on 8 occasions. FII selling was seen in the Februarys of 2016 (Rs 5,521 crore), 2018 (Rs 11,037 crore) and 2022 (Rs 35,592 crore).
With many Nifty companies surpassing Street expectations in the December quarter earnings, all eyes are now on two key events – Union Budget and Fed meeting outcome.
The impact of the Budget on the market has been on a secular decline in the last few years. Morgan Stanley said it will be factoring in fiscal deficit target, the government’s spending plans vs fiscal consolidation, and changes to long-term capital gains tax.
Global brokerage firm Jefferies, on the other hand, said the need for fiscal consolidation and a busy political calendar will make Finance Minister Nirmala Sitharaman’s job tough on February 1.
“Need to generate additional resources may create the risk of increased capital gains taxes. Overall, we see limited scope for the budget to surprise positively,” it said.
(With data inputs from Ritesh Presswala)
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