Although it comes on a higher base, October is turning out to be the highest-ever month in terms of FII selling. Back in March 2020, when FIIs had sold Indian stocks worth $7.9 billion (Rs 58,632 crore), Nifty had the month down 23% despite domestic institutional investors (DIIs) matching the selling with buying of Rs 55,595 crore.
This time also, while FIIs have sold stocks worth over Rs 83,000 crore, DIIs, which are mostly mutual funds, have spent Rs 74,200 crore to be on the other side of the trade in October so far, according to NSDL data.
Unlike 2020, retail investors aren’t panicking and the Nifty is down about 4% in the month.
Amid the sell-off by FIIs, DIIs have made a record buying of Rs 4 lakh crore so far in the calendar year.
For foreign investors, India has become a crowded trade since January 2023. While the momentum of flows into India dedicated funds has slowed down for the first time since 2022, foreign fund flows into China continued for the fourth consecutive week with $18.7 billion inflow in the last one month, according to Elara Securities.The FII outflow has been largely blamed on the ‘Buy China, Sell India’ trade. In the last one month, while Nifty is down 4%, Hang Seng is up 14% while Shanghai’s CSI 300 is up 22%.”Investors expect that China will ultimately embark on meaningful stimuli that will not only underwrite ’24 growth but extend into ’25-26. Also, there is a perception that the government is finally focusing on the economy, and hence, it is likely to underplay political, geopolitical and regulatory issues,” Macquarie strategist Viktor Shvets said.
India bull Chris Wood of Jefferies had recently increased his weightage in China at the cost of India.
The fund management community, however, seems to be divided on China play, with some referring to stimulus by China government as real and went for bottom fishing, whereas the other half takes it as tactical ploy.
Macquarie said it views China’s recent pivot as anything more than an attempt at de-risking and underwriting growth targets, with policies remaining underpowered from consumption and real estate perspectives: moderate clean-up of LGFVs and local debt, some stabilization of real estate and minor changes in consumption and welfare spending, without addressing structural issues of high savings and reliance on investment and exports.
“With elections ahead in the US, it is believed that trade war with China will be more aggressive as we see in the European Union currently and same factors will continue to be in force whosoever comes in power,” said Narender Singh, smallcase Manager and Founder at Growth Investing.
However, the FII outflow isn’t just about the China story. Investors are also concerned about overvaluation in Indian equities, lackluster corporate earnings season and a stronger dollar.
“When markets are at such elevated levels, there is very little tolerance for missing earnings and for bad news,” says market veteran Ajay Bagga, adding that the dollar index rising above 103-level is also having an impact on emerging markets like India.
The Q2 earnings season is only adding to the trouble. Auto shares, for example, are facing sell-off after Bajaj Auto lowered its estimated growth for the two-wheeler motorcycle industry in FY 2025 to 5% YoY, down from the previous estimate of up to 8%.
Nifty heavyweight Reliance Industries (RIL) too saw target price cuts after its Q2 numbers failed to move the needle.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
