When will FPIs start buying Indian equities?

The bull run in the Indian equities has been toppled by persistent selling by foreign investors. 

Since October, FPI counterparts have sold equities worth Rs 33,805 crore. Of this, Rs 14,300 crore, or 42 per cent, was offloaded in December alone. 

Analysts believe FPIs started taking some money off the table ever since indices hit new all-time highs and valuation discomfort emerged. 
 

The benchmark  Sensex hit its all-time high on October 19. This, coupled with concerns that the interest regime could turn less benevolent, triggered selling as emerging markets are affected badly when interest rates go up.

And since India has been a large recipient of FPI flows, there is heightened selling. The weakening of the rupee due to rise in the current account deficit is also tilted against India.
 

That apart, some of the sale in secondary markets was also because of investment options in the primary markets. For example, in December so far, FPIs are net buyers in the primary market to the tune of Rs 11,782 crore.

Let’s go to Vaibhav Sanghvi, co-CEO of Avendus Capital, to understand what’s driving FPIs away from EMs, including India.

That said, while most analysts expect the trend to remain a key overhang on the domestic equities in the short-term, there are some who are optimistic on FPI activity in 2022.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, for instance, sees the current FPI activity as “profit booking” and not “selling”.
 

“FPIs have been sitting on big profits on bank stocks which they accumulated during 2015-20. So, profit booking makes sense.

It is important to note that while FIIs continued selling in banks between Dec 1 and 15, they bought insurance stocks worth Rs 4,997 crore and Oil & Gas stock worth Rs 2,686 crore during this period. The take away from this data is that FIIs are not indiscriminately selling India and will turn buyers when they see value,” says VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services

Data compiled by IIFL Securities shows that FPI sold equities worth $2.1 billion in the sector in November, which was the highest Covid-19 induced sell-off culminated. 

In the last six months, FPI outflows from the sector have aggregated to $3.4 billion.

At the end of November, FPIs allocation in banks and financials was at the lowest level since Sep-20. On the contrary, FPI allocation in power and realty was at highest level since Feb, 2018 and Jan, 2018.

Abhijit Bhave, chief executive officer at Fisdom Private Wealth, too, remains bullish on FPI flows in the next year. 

For now, Indian equities remain at the mercy of FPIs and investors’ assessment of the severity of the Omicron variant of coronavirus.

On Wednesday, market participants will track the sustenance of the recovery seen yesterday. Besides, IPO of CMS Info Systems, and the listing of Metro Brands will be eyed.