Foreign institutional investors (FIIs) shed about $2.4 billion in local equities during the first six sessions of May, as concerns about the ongoing election season made them risk averse. They reduced their equity exposure further to prevent potential surprises.
FIIs sold about $800 million in domestic equities from May 2 to May 7, according to data from National Securities Depository Ltd. Further, they sold Rs 6,669 crore on May 8 and Rs 6,994 crore on May 9, provisional data from the National Stock Exchange of India showed.
They have been net sellers of about $568 million so far 2024. In 2023, FIIs bought shares worth $21 billion.
According to Vinit Sambre, Head-Equities, DSP Mutual Fund, foreign investors are capitalising on recent Indian market rallies ahead of significant events that will shape future trends. This selling trend isn't exclusive to India; FII have also been selling in major world markets, except Japan and South Korea. Dollar strengthening presents an opportunity for FIIs to withdraw from emerging markets, including India. This prompts speculation on whether FIIs are pulling out due to concerns about Indian market stability or awaiting election outcomes before reallocating funds.
Since the beginning of May, India's benchmark Sensex and Nifty have both declined by around 2.8 percent, while broader indices BSE Midcap and Smallcap have experienced larger drops of 3.4 percent and 4.8 percent, respectively. However, year-to-date, both the Sensex and Nifty have seen marginal gains, while the Midcap and Smallcap indices have risen by 10 percent and 5 percent, respectively.
Deven Choksey, MD of DRChoksey FinServ, suggests two potential reasons for FIIs selling off assets in India. Firstly, if the government fails to secure a full majority, markets may decline. Investors are selling now to buy back at lower levels, bolstering their cash reserves. Secondly, concerns have arisen about a deeper market correction due to issues in derivative markets. Some market players anticipate heavier SEBI regulations, leading to unwinding of positions by FIIs. Analysts suggest this selling pressure may persist due to mark-to-market payouts, exacerbating the market decline.
Exit Polls for the 2024 Lok Sabha Elections will be released after 6:30 pm on June 2, with counting scheduled for June 4. Analysts have expressed concern over the low early-phase voter turnout and have begun to doubt the expectations that the BJP-led NDA will win 400 seats.
According to a recent note from PhillipCapital, if the alliance reaches the expected number of seats, the stock market should rally. The brokerage views a lower seat count of 300-330 for the NDA as a potential buying opportunity if it triggers a market fall. They caution that further declines in voter turnout in subsequent phases could influence the election outcome and equity markets, advising close monitoring. PhillipCapital notes that while the turnout in the initial phases has been slightly lower, it's unlikely to significantly impact the widely anticipated outcome of the BJP returning to power.
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