No evidence of FII buying yet. Foreign investors net sold Rs 8,000 cr, not bought Rs 10,000 crore worth shares on Nov 25

On Tuesday, FPI net purchases tapered to Rs1,157 crore, and by Wednesday, they dwindled further to just Rs7.7 crore.

After enduring a record-breaking 38-session selling spree, foreign portfolio investors (FPIs) made a strong comeback on November 25, with net purchases of nearly Rs 10,000 crore, provisional data revealed. On the same day, the market also gained 1.25%, buoyed by the BJP-led NDA’s win in Maharashtra, some investors interpreted this as a sign that FPIs are making a major comeback spurred by the recent price correction. However, a quick analysis suggests otherwise.

The Rs 10,000 crore buying spree on November 25 coincided with MSCI’s key index rebalancing, which added stocks like Voltas, Oberoi Realty, BSE, Kalyan Jewellers, and Alkem Laboratories to its Global Standard Index while including others in its small-cap index.

Such rebalancing mandates passive funds to realign portfolios. According to Nuvama estimates, this should have resulted in Rs 18,000 crore of purchases from passive funds on the day. Considering the net purchases stood at Rs 10,000 crore, there’s clearly a twist—active funds, unbound by index tracking, were net sellers to the tune of Rs 8,000 crore.

On Tuesday, FPI net purchases tapered to Rs 1,157 crore, and by Wednesday, they dwindled further to just Rs 7.7 crore. This indicates there’s still no concrete evidence of a reversal in flows.

Over the past two months, FPIs have offloaded over $13 billion (approximately Rs 1.1 lakh crore) in Indian equities. Initially, this was a tactical play, with funds redirecting to China following a stimulus-led rally in late September. Then came the corporate earnings stumble' in Q2, which dampened the justification for India’s high valuations. Adding to the exodus was Donald Trump’s election win, which reignited "America First" trade optimism, driving funds back to the US amid expectations of tax cuts and tariff hikes. Geopolitical uncertainties further strengthened the case for moving funds to safer markets. The dollar has been exceptionally strong in November, rising 3%, and US equities have outperformed spectacularly.

Some optimists argue that the recent correction in Indian markets offers a sweet entry point for foreign investors. However, skeptics counter that earnings downgrades mean valuations remain stretched. At its peak, the Nifty’s P/E, based on Bloomberg consensus 12-month forward estimates, stood at 21.39. Following the market decline and reduced earnings growth, it now rests at 20.17, which is not exactly a bargain. At the low, on November 21, the number was 19.43.

Leaving aside the local growth and valuation concerns, the "Trump trade" and dollar strength continue to keep global investors cautious. While domestic flows remain robust, weak earnings growth for the current fiscal could delay fresh allocations. As the year winds down and holiday lethargy sets in, local mutual funds and retail investors will likely be the key drivers. Markets are expected to consolidate with an upward bias—after all, fund managers and treasuries invested in the markets would want to end December on a high note.