The equity market may have gone into a tailspin in mid-August but overseas investors have pared down their pace of sales in the Indian equity markets during the month. FIIs, one of the largest drivers of Indian shares, have off-loaded shares worth $515 million till August 23. This is in a period when the benchmark indices have fallen more than 4%.
In contrast, FIIs had sold shares worth $1 billion and $960 million for the comparative period in June and July, respectively. The market had slid 1.09% and 0.6% In June and July, respectively.
The rupee?s sharp depreciation, coupled with concerns that the US Federal Reserve, would start to rollback the quantitative easing programme had triggered the FII selling spree. Since May 22, the rupee has depreciated 16.68%, during which time FIIs have sold shares worth nearly $2 billion. In contrast, domestic institutional investors (DIIs), led by LIC, have bought about $1.3 billion worth of shares during this period. Experts say aggressive selling from proprietary players has put the equity market under stress in August. ?Domestic proprietary desks have been pulling out their money in recent days. Few MFs are also seeing redemption pressures,? said Sonam Udasi, head (research), IDBI Capital.
While the FIIs have not sold Indian shares heavily in August, brokerages have cautioned that any major sell-off from the overseas players would break the resilience shown by the benchmark indices. ?Any major sell-off from foreign institutions would be ominous for the markets as FII ownership is at its highest level in the current year,? said Amar Ambani, head (research), IIFL.
Foreign brokerage Goldman Sachs, in a recent research note, also highlighted the risk of a potential reversal in FII inflows: ?Very little foreign selling has occurred in Indian equities relative to the massive foreign inflows over the past few years. We see increasing risk of a potential ?flow reversal? in equities.? The Sensex is down 4.47% in the current calendar year and has shed 4.07% in August. In year-to-date, FIIs have pumped in about $12 billion in the equity segment.
According to Bank of America Merill Lynch, ?During June quarter, FIIs remained positive on the Indian markets. But have become cautious due to lingering growth issues.?
Foreign brokerages also have been getting increasingly bearish on Indian equities of late. JP Morgan recently downgraded Indian stocks from ?overweight? to ?neutral?, Citi cut its Sensex target from 20,800 to 18,900 citing increasing uncertainty over the rupee, while Nomura slashed its target to 20,000 from 21,700.