Foreign institutional investors (FIIs) have continued to sell their stake in the Indian equity markets for the sixth consecutive month. Their sixth month sale is proving to be the biggest sell-off in a month so far. Net sales have crossed Rs 2 lakh crore and have reached Rs 2,06,649 crore since last October. FII has been the biggest sell-off in February 2022 since the COVID pandemic hit India in March 2020. .
In the current financial year ending this month, FIIs have sold shares worth over Rs 2.5 lakh crore.
FIIs selling started in October when the market touched its all-time high. High valuations on the back of a fundamentally ahead market and rising expectations of a rate hike to fight record inflation of 7.5 per cent in the US had held up FII sales.
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Margin pressure on corporate earnings increased due to rise in commodity prices in international markets. Following this the outbreak of Ukraine-Russia conflict and the rise in crude oil prices and most other commodities including metals also added to the fire.
Earlier on October 19, 2021, the market had achieved a record level of 18,604 on Nifty and 62,245 on BSE Sensex. Since then both the benchmark indices have lost around 13 per cent.
Nimish Shah, Chief Investment Officer, Waterfield Advisors said, “Indian markets were already trading at a higher premium to other emerging markets. So, apart from valuations, interest rate movements also played a key role in selling FIIs.”
He added that the return of FIIs in emerging markets will largely depend on the volatility in interest rates in the US. “We believe that over the medium term, as rates stabilize and global growth picks up, equity allocation by FIIs will resume.”
Domestic institutional investors (DIIs) took the opposite stance of their foreign investors. They have provided a strong support and a good option by investing Rs 1.42 lakh crore in the equity space in the last six months.
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Even in the first few days of March when FIIs pulled out Rs 18,615 crore from the market, DIIs invested Rs 12,600 crore in the markets. With this DIIs have invested Rs 1.94 lakh crore so far in the current financial year.
VK Vijayakumar, Geojit Financial Services, said, “FPIs continue to sell despite Nifty correcting around 13 per cent from its all-time high. The reason behind this is the volatility in the market due to the uncertainty arising out of the war and the rise in crude oil. Buying by DIIs at Rs 42,084 crore against sales of Rs 45,720 by FPI saved the market from a major crash. Currently there is a tug of war between FPIs and DIIs.
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