Election Results Turbulence: FPIs dump ₹17,794 crore in equities in June

Foreign Portfolio Investors (FPIs) continued to be net sellers of Indian equities in the first week of June, despite a market rebound from the 5.9 per cent crash of benchmark indices on Tuesday, due to the unexpected results on election day, June 4.

• Also read:FPIs increase Indian equities sell-off in May amid election concerns, favourable HK market valuations 

For the week ended June 7, FPI offloaded equities worth ₹ 14,794 crore, data with depositories showed. This was over and above their net sales of ₹25,586 crore in May, 2024, and ₹ 8,671 crore in April, 2024.

Till June 7 this calendar year, FPIs have been net sellers to the tune of ₹38,158 crore ($4.6 billion), official data showed. Domestic institutional investors have remained bullish on Indian equities, and remained big buyers including June so as to counterbalance the FPI selling. 

Both on Monday and Friday last, FPIs were heavy net buyers of Indian equities at ₹6,850 crore, and ₹4,391 crore. While Monday’s activity was largely seen as short, covering bump after the exit polls showed a comfortable win for the BJP (which was however not the case as seen on Friday, when the BJP fell short of the magic 272 seats mark). 

On the other hand, Friday’s activity was being seen as a sort of relief purchase, after it came clear that NDA (the BJP with allies), would form the government with Prime Minister Narendra Modi returning to power for the third time in a row. The other three days including June 4, (when FPIs net outflows was ₹12,436 crore on a single day), saw FPIs involved into robust selling. 

Capital market experts, however, had a mixed take on the outlook for FPI activity in the Indian markets, post the crucial election results week.

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that the market in the near term, is likely to be weighed down by the huge FPI selling. Therefore, the large caps in sectors like financials, and IT, where FPIs have huge assets under management may underperform. This trend will change, when FPIs turn buyers, which is inevitable, Vijayakumar said.

“After the huge volatility witnessed in the market in response to the election results, (both exit polls, and actual results), the market is slowly stabilising. 

An important point to consider, is the high valuations of Indian stocks, particularly in the broader market. High valuations, will attract further selling by FPIs, going forward”, he said.

However, Manoj Purohit, Partner, and leader – FS Tax, Tax, and Regulatory Services, BDO India, said “FPIs did react to the election results, resulting in substantial selling pressure with a decision to exit. However, post the final results, the investor fraternity, is now back in action, to look at India as a preferred jurisdiction, as compared to other markets”

Post the election results, and settling down on the political front, India is back on radar, showcasing its strong fundamentals, and long term growth story, he added.

The primary factors that can be attributed to instill such a belief, is positive GDP numbers, the government’s consistent policy reforms to make India a conducive place to invest, and recent announcements of interest rate cut by the European central bank, making room for the substantial investment opportunities, according to Purohit.

“FPIs in India, will continue to grow under a stable government regime, conducive environment, backed by inflation control, fiscal prudence, and a far-sighted vision for India to a make a global hub for capital markets”, Purohit said. 

After the June 4 shocker of unexpected election results, (when the BJP fell short of the 272 mark), the equity markets have recovered smartly, with Nifty, ending with weekly gains of 3.6 per cent on the back of IT, and financial stocks. IT stocks were up 8.6 per cent, on a weekly basis. 

• Also read:India to see $2.5-billion passive FPI flows after MSCI rejig

Vijaykumar said that FPIs are regarding Indian valuations to be very high, and therefore, capital has been shifting to cheaper markets. “The FPI pessimism regarding Chinese stocks, appears to be over, and there is a trend of investing in Chinese stocks listed on the Hong Kong Exchange, since, the valuations of Chinese stocks have turned very attractive,” he said.

In March, and February this year, FPIs were net equity buyers at ₹35,098 crore, and ₹1,539 crore, respectively. They were net sellers of equities, at ₹25,744 crore in January, 2024.