FPIs in sell mode as global issues weigh

Foreign portfolio investors (FPIs) have stepped up the sale of Indian equities as the US-China trade war escalates, dampening sentiment globally, and elections enter the final lap.

Overseas investors offloaded local shares worth Rs 1,142 crore on Wednesday, having been sellers in seven out of 10 sessions so far in May. On Tuesday, they used the bounce in the market, after a ninesession losing streak, to sell local shares worth Rs 2,000 crore based on provisional data, the most in a day since mid-February. The Sensex dropped 0.55 per cent to 37,114.88, while the Nifty ended at 11,157, down 0.58 per cent, on Wednesday.

“There has been a combination of global and local risks. Trade issues between the US and China are the main concern,” said Andrew Holland, chief executive officer at Avendus Capital-Alternate Strategies. “China’s weight in the MSCI index has also been increased along with Saudi, so India will see outflows. Also, if things become worse on the global front, there will be selling and while India may see less fall, it will still fall.”


The Indian financial sector’s woes will persist regardless of the election outcome, he said.

The bearish stance is reflected in the derivatives market as well. Analysts said investors hold 1.3 long positions in index futures for every short position.

That contrasts with three long positions for every one short at the beginning of the series. The long-short ratio of FPIs in futures and options (F&O) is 56 per cent, down from 75 per cent at the beginning of the May series.

FPIs are net sellers to the tune of Rs 3,100 crore so far in May after buying shares worth Rs 53,400 crore in the preceding two months. The Sensex has dropped 4.9 per cent so far in May, while the Nifty is down 5 per cent.

Other Asian markets such as the Philippines, Thailand, Malaysia, South Korea, Taiwan and Indonesia have also seen outflows in May in the range of $97 million to $1.2 billion.

Prospects of a more gradual rate hike cycle in the US drove foreign investors towards emerging markets in March, and India — having underperformed the segment in the first two months of the year — got more than its fair share of flows, analysts said. The perception that the reform-friendly Narendra Modi-led government will return to power after national polls also drove foreign investors toward India, they said. It was also seen as being tough on Pakistan, following the Pulwama attack in February and the subsequent retaliatory strike. FPIs bought Indian shares worth about Rs 68,200 crore between January and April, of which nearly 80 per cent came after March.

Flows tapered off in April as oil prices surged above $75 a barrel and the trend turned to selling in the month of May after the US-China trade war erupted again.

Experts said the liquidity crisis that has gripped non-banking finance companies (NBFCs), a slump in demand that’s dragging down growth and premium valuation of over 18 times one-year forward earnings are making India less attractive, especially as the poll outcome draws near. Votes are to be counted on May 23.

Experts believe that most of the FPI flows this year have come from exchange-traded funds (ETFs), which is not long-term institutional money and this is reversing amid global risks. “The selling has been triggered by global reaction and usually when we see such high selling in a day, it is because of ETF selling,” said Ayon Mukhopadhyay, director, UK and Europe, at IIFL Institutional Equities.

Mukhopadhyay said domestic institutional investors (DIIs) have been absorbing the sales by overseas investors and will continue to support Indian markets going ahead.

DIIs have bought Indian stocks worth Rs 6,100 crore in May but on a year-to-date basis, they are net sellers to the tune of Rs 10,400 crore.

“DII flows will stay strong unless there is an unstable government or there is redemption pressure, which we don’t see at this point. Also, active money has not come into the market yet,” said Mukhopadhyay.