Foreign institutional investors (FIIs) have been on a selling spree in India this financial year, with November seeing an outflow of over Rs 17,900 crore in the equity cash market, taking the net outflow in the segment since April to almost Rs 87,000 crore.
This comes even as the Nifty50 has gained over 18 percent since April and markets, despite intermittent volatility, are much higher than they were eight months ago.
Domestic investors have net bought shares worth over Rs 13,000 crore in November, so far, and more than Rs 69,000 crore since April.
Except in September, when FIIs net bought Rs 913 crore in the cash market, they were net sellers in the remaining months of FY22
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Experts say foreign investors are withdrawing on the US Federal Reserve’s plans to taper the massive stimulus and eventually hike rates. The move would narrow the interest rate differential between the US and emerging markets like India, making them less appealing since the Unites States is considered a safe haven.
“Foreign investors are moving money to the US because of the strength in the dollar. This is giving domestic investors an opportunity to buy Indian stocks at a slight discount, hence, the disparity between DII inflows and FII outflows,” said Shyam Sekhar, Founder of ithought advisors.
"This financial year, the Federal Reserve has been visibly charting a course for the post pandemic era, which included reduction of bond purchases. Consequently, the benchmark US 10 year treasury yields rose faster, narrowing the yield differential between US and India. This prompted FIIs to take some money off the table, while domestic investors stayed the course," explained Anand James, Chief Market Strategist at Geojit Financial Services.
Yes Securities' Amar Ambani also attributes the FII selling to faster-than-expected Fed policy normalisation. "Recent FII outflows can also be seen as a year-end phenomenon, but the flows are expected to return next year.”
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Even as FIIs remained net sellers, participants are bullish on Indian capital markets. The Sensex has gained over 16 percent since April this year.
"Despite FIIs selling shares worth more than 87,500 crores in FY21, the DIIs had an offsetting position and bought shares worth 69,000 crores. The total number of retail investors increased by an astonishing number of 14.2 million in FY21. This goes to show that the Indian stock market is now majorly dominated by retail investors marking it the era of retail investors," said Chandan Taparia - Vice President-Equity Derivatives & Technical, Broking & Distribution, Motilal Oswal Financial Services.
He believes investors embraced volatility and took full advantage of the bull run in the past year.
"The twin threats of inflation and infection will continue to sway sentiments, but they may not surprise markets into a collapse," said James.
Ambani is also bullish on the markets, saying, “On the broader perspective, we reiterate our bullish stance, with our positive rationale very much in place. We see the Nifty during 2022 at much higher levels than 2021.”