While the relentless selling by foreign portfolio investors (FPIs) in Indian stock market continued in November, the intensity of selling is expected to taper off soon, according to experts.
After selling equity for Rs 1,13,858 crore through exchanges in October, FPIs have sold another Rs 41,872 crore of equity through exchanges in November so far, according to exchange data.
However, the trend of FPIs buying through the primary markets also continued with Rs 15,339 crore worth buying in November.
The total FPI selling through the exchanges between October 1 and November 23 stands at a whopping Rs 1,55,730 crore, exchange data show.
This is the kind of selling that happens in a year when FPIs are on selling mode, analysts said.
On November 22, when the Sensex jumped by 1,961 points, or 2.54 per cent, to 79,117.11, FPIs pulled out just Rs 1,278 crore.
However, domestic institutional investors (DIIs) invested Rs 37,559 crore in November so far and Rs 107,254 crore in October this year.
‘Sell India, Buy China’, FY25 earnings show at play
“Mainly three factors led to this massive selling by FPIs. One, the ‘Sell India, Buy China’ trade. Two, the concerns surrounding FY25 earnings. Three, the ‘Trump trade.’ Of the three, the ‘Sell India, Buy China’ trade is over,” said K Vijayakumar, chief investment strategist, investment services company Geojit Financial Services.
The Trump trade also appears to be on its last leg since valuations have reached high levels in the US.
“Therefore, the FPI selling in India is likely to taper off soon. Also, valuations of large caps in India have come down from the elevated levels. FPIs have been buying IT stocks and this has been imparting resilience to IT stocks. Banking stocks have been resilient despite FPI selling, mainly due to DII buying,” he said.
According to a JM Financial report, the results of the 2024 US presidential elections indicate that Donald Trump and the Republicans have gained control over all the three branches of the US government.
“We believe Trump’s plans for lower corporate taxes, higher import tariffs, and deportation of illegal immigrants will result in growth in the US economy, higher inflation, higher interest rates, and a stronger US dollar. This might tempt FPIs to take at least some portion of their money to the US,” the report said.
“FPIs keep evaluating every country. It would be wrong for us to expect that they will always remain invested in India. If some other market becomes attractive from a valuation point-of-view, FPIs can look at that. Also, there are very few FPIs who invest in a single country. So, at any given point in time, they keep reallocating. Like the domestic investors who churn between different companies and stocks, FPIs churn between different countries,” said the CEO of a fund house.
“Taking into account where India is today, I don’t think that’s a worry that we should have. We have a couple of investment mandated from Japan and we are seeing more interest in India than ever before from Japan,” he said.
Meanwhile, giving more operational flexibility to foreign portfolio investors (FPIs), the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) recently allowed FPIs to classify equity stakes in excess of 10 per cent in Indian companies as foreign direct investment (FDI), paving the way for smoother and greater flow of foreign investments.
The RBI directed FPIs to obtain necessary approvals from the government and concurrence from the investee companies when their equity holdings go beyond the prescribed limits and they reclassify the holdings as FDI.
Under Foreign Exchange Management (Non-debt Instruments) Rules, 2019, investment made by the FPI should be less than 10 per cent of the total paid-up equity capital on a fully diluted basis.
Now, any FPI investing in breach of the prescribed limit would have the option of divesting their holdings or reclassifying such holdings as FDI within five trading days from the date of settlement of the trades causing the breach, the RBI notification said.
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