Foreign Institutional Investors net sold equities worth over Rs 10,000 crore in a single trading session on May 20. This led to a fall in domestic equity indices, which extended the loss for the third consecutive trade. However, the Domestic Institutional Investors pitched in with Rs 6,738.39 crore.
Key reasons for FII selling in Indian equity market
According to the market experts, there could be multiple reasons behind this drain. However, the one that was common among them all was the rise in COVID-19 cases.
“Yesterday’s FII sell figure of Rs 10,016 crores is a major reversal of their big buying in May, and if this persists, it has the potential to impact the market,” said VK Vijayakumar, Chief Investment Strategist at Geojit Investments.
Rising cases of COVID-19 in Asia
In Asia a lot countries experienced a surge in COVID-19 cases, like Singapore, Hong Kong, Thailand, etc. The new Omicron sub-variants, particularly JN.1 and its descendants such as LF.7 and NB.1.8, are the active virus.
In India, there are currently 257 active cases, which are mild in nature and don’t need hospital care.
Kerala has the highest number of active cases with new infections, recording 69 cases. Maharashtra trailed Kerala with 44 cases, and Tamil Nadu stands at third with 34 cases.
Moody’s downgrade of US debt a key worry
Explaining the other factors why FIIs may have turned net sellers, Vijayakumar said that the credit rating downgrade of US sovereign debt by Moody’s Ratings could be one, consequently spiking the US bond yields. Then Japanese Govt Bond yields also surged, which could have led to selling in Indian markets.
Ajit Mishra, Senior Vice President of Research at Religare Broking, said that intermediate volatility in the US markets and concerns over the potential impact of the US-China trade deal on foreign institutional inflows into emerging markets, including India, and a rise in Covid cases could be behind the pullback by FIIs.
The FIIs have been consistently buying equities for more than a month, starting April 15 and have so far pumped in funds over Rs 50,000 crore in this period. However, the current global uncertainties and COVID-19 led to a sell-off by FIIs in yesterday’s trade.