Foreign portfolio investors (FPIs) may slow their pace of selling in the coming days as the market may be in the oversold territory, analysts said.
FPIs have sold Indian stocks worth ₹1.48 trillion in 2022, with more than ₹20,800 crore worth of equities sold in the first two weeks of this month alone. May is the eighth consecutive month when foreign investors remained net sellers of equities.
On Friday, Indian stocks opened higher amid positive global cues but gave up the gains later.
The BSE Sensex index closed 0.2% lower, plummeting 1,000 points from its intraday high. Domestic stocks have been declining for some time now as investors reacted to surging inflation data and its impact on economic growth. In addition, monetary policy tightening worldwide remains a key overhang for equity markets globally.
Mitul Shah, head of research at Reliance Securities, said that while foreign portfolio investors selling may continue, it is likely to be at a slower pace, considering the extent of the selloff.
“Foreign portfolio investors continued selling in May. Since markets have turned very weak globally, FPIs may continue to sell, perhaps with reduced volume,” said V.K. Vijayakumar, chief investment strategist at Geojit Financial Services.
Heightened concerns around the global economic slowdown due to surging inflation prompted the selloff. Higher fuel and commodity prices are likely to crimp corporate earnings. In addition, investors are also closely watching the impact of the Russia-Ukraine war on global supply chains.
Deepak Jasani, head of retail research at HDFC Securities Ltd, said the quantum of FPI selling would depend on the global markets.
The selling is also influenced by the bond yields in the US market, which are offering good returns, said Vinit Bolinjkar, head of research, Ventura Securities Ltd.
To be sure, Indian market valuations are also still not cheap, experts said. Even after the correction, Nifty is trading at around 19 times FY23 earnings, said Vijayakumar. This is higher than the long-term average of 16 times and certainly not an attractive valuation, he said.
He advised retail investors not to buy aggressively as there is a risk-off sentiment globally, and FPIs will use every bounce to sell in the market.
FPIs are favouring commodity-producing countries, unlike importers such as India, as they are benefiting from surging prices, analysts said.
“The preference of FPIs is quite clear: Commodity-producing countries like Brazil, South Africa, and Indonesia at the expense of commodity consumer countries like India,” said Bharat Arora, an analyst at Ambit Capital. The FII outflows from India possibly have been re-routed to Brazil, Arora said. This has manifested in market performance, with commodity-producing economies outperforming commodity-consuming markets, Arora added.
Among emerging markets, flows have gone into countries such as Brazil, Thailand and Indonesia, which have benefited from high energy prices, said Nitin Agrawal, co-founder and chief executive of Orowealth.
For FPI equity flows to turn around, there must be strong signals either on corporate earnings or policy reforms, given that the days of easy monetary policy are over, economists at BoB Economics Research said. Further, the fiscal stimulus in our context has been limited and therefore, on the equity side, they do not expect significant inflows.