FIIs actually did not buy shares worth Rs 10,000 crore on Monday; Here's why?

The selling has been on account of a variety of factors: the big-bang China stimulus package announced in late September, the US election-related volatility in global markets, and spiking geopolitical tensions.

After recording the longest-ever selling spree of 38 sessions, foreign portfolio investors (FPIs) finally pressed the buy button on November 25, with provisional data showing that foreign investors bought shares worth almost Rs 10,000 crore amidst an overall positive market sentiment because of the win that BJP-led NDA registered in Maharashtra.

A key reason for the inflows, according to experts, was the MSCI (Morgan Stanley Capital Investment) rejig. Stocks like Voltas, Oberoi Realty, BSE, Kalyan Jewellers, and Alkem Laboratories were added to MSCI Global Standard Index on November 25, while other counters were added to MSCI's small-cap index.

“A significant chunk of the FII buying can be attributed to the MSCI index rebalancing. Five Indian companies were added to the MSCI Global Standard Index, triggering passive inflows of around $2.5 billion (about Rs 20,000 crore, out of total purchase of Rs 80,000 crore). This recent buying activity suggests a targeted inflow rather than a broad-based return of FIIs,” said Vinit Bolinjkar, Head of Research at Ventura Securities.

This assumes significance as market participants believe that net MSCI FII passive flows should broadly amount to $2-2.5 billion, which translates to around Rs 17,000 crore. However, Monday's flows were nearly Rs 10,000 crore, which, as per experts, indicate that active FIIs likely sold around Rs 7,000 crore to Rs 8,000 crore cash position amidst the rally.

Over the past two months, FPIs have been aggressively selling in the India stock market with their cumulative net sales pegged at over $13 billion in October and November. The selling has been on account of a variety of factors: the big-bang China stimulus package announced in late September, the US election-related volatility in global markets, and spiking geopolitical tensions.

Also read: FIIs turn net buyers after 38 consecutive sessions, buy shares worth Rs 9,948 crore

Further, the earnings season also did not instil much optimism, with most analysts worried about a slowdown in consumption growth that will affect demand. Further, high valuations had also kept investors away.

The sell-off weighed on the market sentiment, with the frontline indices taking a 10 percent plunge, briefly entering the correction territory. Currently, the headline Nifty 50 and Sensex indices are down eight percent from their respective highs.

Hence, November 25 came as a surprise when FIIs net bought shares worth Rs 9,948 crore even as domestic institutional investors (DIIs) net sold shares worth Rs 6,908 crore.

But can it be said that FIIs are back for good? Well, most analysts believe that one should not jump the gun and a wait-and-watch approach would be better at the current juncture.

Bolinjkar further adds that while the Nifty 50 and Sensex have seen a drop in valuations post the recent correction, the Indian markets still look expensive compared to their global peers. “For FIIs to come back in a big way, we might need either further price corrections or strong earnings growth to justify the high valuations,” he said.

According to Kranthi Bathini, Equity Strategist, Wealth Mills, it was 'hot money' that rushed to Indian markets during the positive market sentiment and rushed out as the narrative changed. However, long-only FII funds remained steadfast in their holdings, as they believe in India's structural narrative and growth prospects.

Has 'Sell India, Buy China' played out?

Following the stimulus measures announced in China, foreign funds pulled out their Indian holdings to invest in cheaper Chinese equities. However, most analysts believe that the China narrative has run out of steam.

CLSA, which hiked its China weightage, reversed its tactical allocation, resuming to remain 'overweight' in India. “Paradoxically, India has seen strong net foreign investor selling since October, while investors we have met over the year have been waiting specifically for such a buying opportunity to address underexposure to what is arguably the principal scalable growth opportunity in EM,” said CLSA's Alexander Redman.

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