FPIs begin November on subdued note, offload ₹3,412 crore in Indian equities; When will buying resume?

FPIs have sold ₹3,412 crore worth of Indian equities and offloaded a total of ₹195 crore as of November 3, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data.

FPIs have reversed the prior three-month trend of sustained buying and emerged net sellers in September and October. Surging US bond yields have been the major reason for FPI outflows since last month, according to analysts.

Why did FPIs extend their selling streak?

FPIs were sellers in sectors like financials, power, FMCG and IT. ‘’The primary reason for the sustained selling is the sharp spike in US bond yields which took the 10-year yield to a 17-year high of 5 per cent…With such high bond yields it is rational for FPIs to take out some money,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

The 10-year yield rose to 7.3645 per cent on October 6, with the 15 basis points increase its biggest single-session rise since May 4, 2022. One basis point is one hundredth of percentage point. 

US bond yields down to 4.66%: What’s behind the correction?

After the latest US Federal Reserve policy outcome on November 1, the US bond yields have sharply corrected to 4.66 per cent on Fed Chair Jerome Powell’s dovish commentary. 

The rate-setting Federal Open Market Committee decided to keep the key overnight interest rates unchanged at 5.25-5.50 per cent – a 22-year high mark for the second straight meeting. Other major central banks including Bank of England and Bank of Japan have also kept a pause on the key interest rates – similar to the US Fed.

After peaking at 5 per cent on October 19, the US bond yield started to decline. The decline has been steep in the last two days, taking the yield down sharply to 4.66 per cent on November 3. 

‘’The main trigger for this reversal in bond yields is the subtle dovish commentary from the Fed chief Jerome Powell that “despite elevated inflation, inflationary expectations remain well anchored.”  The market has interpreted this statement as the end of the rate hiking cycle. That’s why yields have corrected sharply,” said Geojits’ Dr. V K Vijayakumar.

Also Read: FIIs offload ₹12 crore in Indian stocks, analysts see near-term short-covering; DIIs infuse ₹403 crore

Selling streak to reverse soon, FIIs may turn buyers: Analysts

Analysts reckon that the Indian market continues to exhibit resilience even in the midst of several challenges and there is a growing concern among FPIs that if they continue to sell, they will miss out on the potential rally in the Indian market. This might restrain the FPIs from selling heavily in the coming days.

Foreign institutional investors (FIIs) offloaded Indian equities for ₹3,063 crore through the cash markets in the first three days of November. The selling trend is unlikely to continue, going forward, since the main trigger for FII selling, the rising bond yields, has reversed, according to Geojit Financial Services.

‘’FII selling is likely to be subdued, going forward. They may even turn buyers, not to miss the rally in the Indian market. Frontline banking, automobiles, capital goods, and mid-caps in IT and real estate are poised to do well,” added Dr. V K Vijayakumar.

Market experts also project short covering by FIIs in the near-term if they turn buyers over positive global cues. With Brent crude crashing to the $85 per barrel mark and expectations of a pause in rate hikes by the Fed, foreign investors may start buying Indian equities soon, said analysts. This could lead to short covering which can take markets higher despite the uncertainty surrounding the Israel-Hamas conflict.

‘’Good earnings numbers and expectations that the interest rate will remain stable for now and will decline in H2 of CY2024 have facilitated market recovery. The positive global sentiments can embolden the bulls in India to stage a comeback. Since FIIs are short in the market, short covering is a possibility,” said the analyst.

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Updated: 04 Nov 2023, 05:56 PM IST