FPIs sell 35,000 crore in domestic shares over last 2 months

September was the first month in the current fiscal when FPIs sold domestic shares. From April to August, overseas investors net purchased Rs 1.62 lakh crore worth of Indian shares. Heavy selling by the FPIs in September and October resulted in the BSE’s Sensex falling by 2.45 per cent and NSE’s Nifty declining by 2 per cent during this period.

“FPI selling continues unabated. The primary reason for the sustained selling is the sharp spike in US bond yields which took the 10-year yield to a 17-year high of 5 per cent. The yield has now declined to 4.84 per cent. With such high bond yields, it is rational for FPIs to take out some money,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

On October 23, the yield of the 10-year US Treasury surged to 5.02 per cent – the highest level since 2007. This rise in US bond yields was on expectation that the US Federal Reserve will keep interest rates higher to check inflation which may rise due to higher crude oil prices.

FPIs have become risk averse and are also pulling out funds from the domestic market on worries over the ongoing Israel-Hamas war. They are opting for safe-haven assets such as the US Treasury, bonds and gold, which are considered to be less risky.

“The Israel-Hamas conflict in West Asia and the uncertainty surrounding the conflict has added to negative sentiments in the market,” said Vijayakumar.

Of the Rs 20,356 crore of domestic equities sold by FPIs in October so far, 67 per cent, or Rs 13,563 crore worth of shares were dumped between October 18 and October 27, which led to over 3 per cent decline in the Sensex and the Nifty during the period.

FPIs were sellers in sectors like financials, power, FMCG and IT. “FPI selling has impacted the financial services and IT segment more than others. The reason is that these two segments account for the major part of FPI’s AUM (assets under management). Of the total FPI AUM of around $ 652 billion, financial services account for $213 billion and IT accounts for $ 64 billion,” said Vijaykumar, adding that the stock prices in these segments are weak due to FPI selling and not due to any fundamental factors.

Analysts said the widening Israel-Hamas conflict continues to remain a worry for FPIs. They will also closely watch the outcome of the US Federal Reserve’s meeting scheduled from October 31 to November 1.