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FPI selling in Indian equities quietly receding: $34 billion pulled out since October

While Tuesday marked their first purchase in July, they had bought only once in previous 25 sessions, Bloomberg data show.

Stock Market FPI
While Tuesday marked their first purchase in July, they had bought only once in the preceding 25 sessions, which was on June 20, Bloomberg data show.

The ongoing selling by foreign portfolio investors – the most intense in more than a decade – seems quietly receding, with the five-day rolling average through Tuesday falling to less than $100 million. Overseas investors, who pulled out a record $34 billion since October, bought Indian shares worth $163.29 million on Tuesday, provisional data on the bourses showed.

While Tuesday marked their first purchase in July, they had bought only once in the preceding 25 sessions, which was on June 20, Bloomberg data show.

With the intensity of selling gradually slowing down, five-day rolling average on Tuesday stood at $90.33 million, against the June average of $287 million. Sectorally, bulk of the FPI selling on a 12-month rolling basis has been concentrated around financials and IT (93% contribution) along with FMCG, other services and construction materials. Metals, power, discretionary consumption and telecom saw inflow.

According to ICICI Securities, the fear of aggressive quantitative tightening by the US central bank to tame inflation and premium valuations have prompted such a large-scale outflow from the Indian markets. However, the recent sell-off has made many pockets more attractive and the fear of a structural increase in inflation is reducing as global commodity prices decline over the recent past, which should build confidence of slowing down of FPI outflows incrementally.

“Risk still remains in terms of elevated CPI inflation and crude oil prices which are yet to climb down meaningfully from their recent peaks,” wrote the domestic brokerage in a strategy note.

Relentless selling by FPIs, along with recent corrections, has brought down the assets under their custody to $531.62 billion as on June 15, compared with $666.67 billion at the end of September 2021. Their holding now translates into 17.5% of the aggregate market capitalisation of $3.03 trillion. However, despite massive selling, the impact on benchmark indices is much lower compared to the 2008 financial crisis as domestic investors stepped in with huge buying that strongly absorbed FPI selling.

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