Foreign Investors Have Pulled $9,600 Million From Equities So Far In February.

Foreign investors have pulled $9,600 million from equities so far in February.

HIGHLIGHTS:

• In January, foreign portfolio investors sold shares worth 28,851 crores, the same month that the main indexes, Sensex and Nifty, fell.
• Around 79% of the monthly withdrawals were from the financial services and oil & gas industries, totalling 22,800 crores.
• According to data from the National Securities Depository, fifteen of the twenty-four different market categories had a negative net cash flow from overseas portfolio investments in January (NSDL).

Foreign portfolio investors (FPIs), who made a net outflow of 28,852 crores in January 2023, have continued to dump Indian stock markets, with withdrawals totalling over 9,600 crores in February. According to analysts, FPIs are banking on equities in the auto, metal, and construction industries despite the selloff.

When the benchmark indices Sensex and Nifty fell in January, foreign portfolio investors sold shares worth 28,851 crores. This is the biggest FPI sale since June 2022, when things started to turn around and FPIs started to net buy Indian stocks.

79% of all outflows during the month were accounted for by the financial services and oil and gas sectors, totalling 22,800 crores. The oil and gas industry’s selloff is neither unexpected nor new; in the second half of 2022, FPIs sold oil and gas stocks worth $9,839 crore.

However, the turnaround in the financial services industry is relatively fresh; in this area, foreign portfolio investors bought assets worth $24,256 crore in the second half of 2022. In addition, they had a positive net purchase balance in four out of the six months.

The worst outflow over the last seven months

In January, the outflow follows a net withdrawal by foreign portfolio investors (FPIs) of Rs 28,852 crore. Data from the depositories showed that this was also the worst outflow in the last seven months. They had previously invested a net total of Rs. 36,238 crore in November and Rs. 11,119 crores in December.

Because of the increase in the rate implemented by the central banks, it is projected that the flow of FPIs will be volatile in the future, much like the behaviour of Indian equities. The Head of Equity Research for Retail at Kotak Securities, Shrikant Chouhan, made this statement.

The Director – Manager of Research at Morningstar India, Himanshu Srivastava, said, “I foresee this flow (outflow) pattern to stay until there is more certainty on the Adani situation, markets stabilize more, and FPIs indicate more strong signals of revival in the Indian economy.”

The report shows that between February 1 and 10, FPIs withdrew a net amount of Rs 9,672 crore from stocks. The more excellent value of Indian stocks compared to specific other comparable markets is one of the leading causes of this net outflow. According to Srivastava, this has led to investments leaving Indian markets and moving to similar countries, like Taiwan, South Korea, and Japan.

Additionally, China’s aggressive openness following a string of lockdowns attracted global investors to its shores. He continued that Chinese markets dramatically decreased after the strict lockdowns, which increased their allure as a bargain investment. The National Securities Depository reported that FPI flows were generally negative in 15 of the 24 sectors in January (NSDL).

According to the statements made by a variety of analysts, the worries over the vulnerability of Indian banks to the Adani Group drove foreign portfolio investors to sell their interests in the financial services industry. “Fears of banks’ exposure to Adani had an impact on banking equities. According to Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the RBI’s assertion that the Indian banking sector is robust encouraged attitudes and caused a late rise in banking equities.

After the release of the Hindenburg report on the Adani Group on January 24, the equities of several state-owned companies in India, including SBI and LIC, amongst others, have experienced a decline. When comparing the period from January 24 to the 31st, SBI’s stock dropped 6.9%, while LICL’s price dropped about 7%. Similarly, shares of HDFC Bank decreased 5.4%, while shares of ICICI Bank dropped 4.7%.

FPIs are investing in other “attractive” economies while shorting Indian shares.

Analysts feel that foreign portfolio investors (FPIs) are migrating to other “promising” markets and shorting Indian equities. The recent drop in the value of the Adani Group as a direct result of the findings of the Hindenburg investigation may be at least primarily responsible for this, but it is also a contributing factor.

After selling heavily in the cash market in January, FIIs reduced their selling in February and began buying on the 10th for $1,458 crore. The FPI’s strategy of shorting India and buying into less expensive countries like China, Hong Kong, and South Korea appears to end. According to CDSL figures, overall FPI sales have exceeded 38,523 crores as of 2023. Chief Investment Strategist at Geojit Financial Services, V K Vijayakumar, claims that the volume of cash transactions seems much larger.

Vijayakumar emphasised that foreign institutional investors (FIIs) have purchased vehicles, auto accessories, building materials, metals, and mining. They have a track record of selling financial services. In the IT industry, buying in late January and early February has replaced selling in early January. The persistent FPI selling seems to be gradually coming to a stop.

FPI flows have been inconsistent for emerging markets so far this month. According to a PTI report, foreign investment flocked to South Korea, Taiwan, and Indonesia while leaving India, Thailand, and the Philippines behind. Foreign investors have been actively shorting Indian markets, only to re-enter at higher, more lucrative values. Regarding sectoral allocation, they are going towards the infrastructure, commodities, and automotive sectors following market cycles.

In the future, we’ll see them allocate to industries like chemicals, pharmaceuticals, and textiles that have been severely depressed for the past year, according to Sreeram Ramdas, vice president of Green Portfolio, a SEBI-registered provider of portfolio management services. Because of the selling that was done by foreign portfolio investors (FPI), the Indian equities markets had a bad performance in January when compared to their rivals in Asia.

Edited by Prakriti Arora