FIIs offload ₹22,858 crore in 6 sessions: VIX to hawkish Fed—5 key reasons causing bulk selling in Indian equities

On the other hand, domestic institutional investors (DIIs) were net buyers and investors 16,700.19 crore. However, continued inflows were not aggressive enough due to uncertainty surrounding the election outcome and could not balance any outflows of foreign investors.

Also read: Stock markets today: Sensex hits 2-month low as index rises above 1,000 points; Investors lose 7.35 lakh crore

Fund Flows by FII, DII in last 6 sessions

Analysts said high quality largecaps are now vulnerable due to bulk selling by FIIs. FIIs were buyers in six of the six sessions in May and net outflows stood at 22,858 crore, while DII was the buyer for all sessions, with a total investment of Rs 16,700.19 crore, according to stock exchange data.

According to NSE data, FIIs bought incrementally 11,353.03 crore while selling Indian equity 18,347.89 crore resulting from an outflow of — 6,994.86 crore on Thursday, May 9. Meanwhile, DII invested 16,351.32 crores and offloaded 10,708.79 crore, registering an inflow 5,642.53 crore.

FIIs Dump Indian Shares: Here Are 5 Key Reasons Behind Bulk Selling

1. High US bond yields

The yield on the 10-year Treasury note, a benchmark for global borrowing costs, rose for a second day after the 10-year note auction. Trigger of bulk selling by FIIs and Foreign Portfolio Investors (FPIs)., in both equity and debt, US bond yields increased sustainably. The 10-year bond yield is now around 4.7 percent which is very attractive to foreign investors.

In bond markets, the 10-year Treasury yield fell to 4.46 percent by the end of the day, from 4.50 percent late Wednesday. The two-year yield, which more closely tracks U.S. Federal Reserve expectations, fell to 4.81 percent from 4.84 percent late Wednesday.

Regarding the near-term outlook, analysts stressed that the divergence between FII outflows and DII investment is unlikely to last long as the bull run will return to the market once clarity on the general election results emerges.

2. Rise of VIX index in India

According to analysts, investors were wary of entering the market ahead of the election results and many were locking in their gains by booking profits. The fears pushed the country’s volatility index to 18.20 for the 11th straight session, the highest since October 2022.

Analysts feel that a major reason for the market decline is the ongoing uncertainty surrounding the general elections. The degree of uncertainty has contributed substantially The India VIX, a measure of volatility, hit a 52-week high 19, cementing fear into the market.

“Our market has been driven by domestic investors, including both HNIs and institutional investors, over the past few months. Now, they have been sitting for the last few days and taking some profits off the table before the big event, while FIIs are continuously selling in our market, which is pushing the market lower. The volatility index is up 70 percent from its lows, which is also creating some uncertainty among traders and investors,” said Santosh Meena, head of research, Swastika Investmart Ltd

The market fear gauge — ‘India VIX’— indicates how much the Nifty 50 index is expected to change over the next 30 days. A big drop in the volatility index indicates that participants are confident about the near-term market trajectory. The volatility index usually experiences a decline after the election results are decided.

3. Outperformance of the Chinese market

Apart from the uncertainty surrounding the election results and the impact of higher US bond yields, there is another major factor behind the bulk selling by FIIs. This remains the current outperformance logged by the Chinese and Hong Kong markets. The Nifty fell 1.5 percent in the past one month, the Shanghai Composite gained 2.62 percent, while the Hang Seng gained 8.8 percent.

“The market price to earnings (PE) ratio of China and Hong Kong is close to 10 whereas India is expensive with double the PE of this market. As long as this outperformance of the Chinese and Hong Kong markets continues, FIIs are likely to sell. Frontline Financial’s weakness is largely due to FII selling,” said Dr VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Also read: US Fed to keep rates at 23-year high until inflation cools, slowing balance sheet runoff: 5 key highlights

4. Hawkist position of the US Federal Reserve

The US central bank kept its overnight key interest rate at a 23-year high of 5.25 percent – 5.50 percent through July 2023 and signaled interest rates will remain high until inflation cools and continues to move toward the target range.

US Federal Reserve Bank of Boston President Susan Collins recently said the US economy needs to cool as a way to bring inflation back to the central bank’s two percent target. For now, when it comes to monetary policy, “recent upward activity and inflation surprises Suggest possible need to keep policy at current level Until we have more confidence that inflation is going sustainably towards two percent,” he said.

US Fed’s hawkish talks put additional pressure on Indian stocks. Such statements enabled the US dollar to rebound after witnessing some profit booking earlier this month. A rising U.S. dollar fueled U.S. Treasury yields so investors are expected to shift money from equities and other assets to currency and treasury markets, market experts said.

Stock market today

Domestic equity benchmark Sensex tumbled over 1,000 points on Thursday, May 9 while the Nifty 50 fell below the 22,000 level due to across-the-board selling amid general election uncertainty. Loss of investor wealth 7.34 lakh crore as markets took a heavy hit and frontline indices hit two-month lows.

Lower for the fifth straight session, the 30-share BSE Sensex settled down 1,062.22 points, or 1.45 percent, at 72,404.17. During the day, it fell 1,132.21 points or 1.54 percent to 72,334.18. The NSE Nifty was down 345 points, or 1.55 percent, at 21,957.50. It fell 370.1 points or 1.65 percent to 21,932.40 during the session.

Underperformed the broader market benchmark indices. Nifty Small Cap 100 ended down 2.83 percent and Nifty Midcap 100 ended 1.85 percent lower. The overall market capitalization of BSE-listed companies has fallen by approx 393.34 lakh crore from Rs 400.69 lakh crore in the previous session, resulting in investors losing approx 7.35 lakh crore in one session.

Disclaimer: The opinions and recommendations expressed in this analysis are those of the individual analyst or brokerage firm, and not Mint. We strongly advise investors to consult certified experts before making any investment decisions, as market conditions can change rapidly and vary from individual to individual.

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Published: 09 May 2024, 09:42 PM IST

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