FII outflows so far in Oct second highest in 4.5 years

Foreign institutional investors (FIIs) have net sold the most shares by value in four-and-a-half years so far this month amid a rally in Chinese stocks, escalating tensions in the Middle East and relatively costlier valuations of domestic equities.

FII sales in the month through 11 October stand at ₹58,711 crore, according to NSDL data as of Friday. This is the second-biggest outflow since the record ₹61,973 crore net sale of March 2020 at the onset of the pandemic.

To be sure, their behaviour will be closely followed over the remaining part of the month. The trend shows that over the past four fiscal years, they have invested in IPOs, rights and preferential issues, and booked profits in the secondary market.

A key event this week is ₹ ₹27,870.16 crore public issue of Hyundai Motor India, the country’s biggest IPO fund raise to date, which opens on 15 October and closes on 17. Subscription by institutional investors will be closely tracked in the upcoming issue, said market veterans.

“They (FIIs) have indeed sold heavily so far this month, coinciding with a hope trade in China and war clouds looming over the Middle East, which in turn queers the pitch for crude oil pricing, said R Venkataraman, chairman of IIFL Securities . “It will be interesting to see how they play the markets in the coming sessions, especially with the biggest-ever IPO opening this week.”

After a host of monetary and fiscal stimulus measures on 24 September, the benchmark Shanghai Composite Index has risen 18.4% to 3,217.74 through 11 October, surging to a 52-week high of 3,674.41 on 8 October.

The Nifty has declined 3.8% to 24,964.25 over the same period (24 Sep-11 Oct), thanks to the heavy FII selling this month. While DIIs (domestic institutional investors) closely matched the FII outflows by net buying ₹57,792.2 crore worth of shares so far this month, according to BSE data, heavy derivative bullish bets’ liquidation by foreign investors dragged down the Nifty.

“The stimulus measures by China late last month combined with relatively cheaper valuations there are chiefly behind the FII outflows from India this month,” said Andrew Holland, CEO, Avendus Capital Public Markets Alternate Strategies. “China will have to back those boosters with substantive actions, else the flows could begin to ebb.”

Holland expects the long term “structural story” of India to attract global money flows in the long run, but the China trade and the growing fears of an all-out Israel -Iran conflict act as “hurdles” for FII inflows into India over the short term, with Q2FY25 results having to justify the high valuation of stocks.

While the price-to-earnings multiple of MSCI China Index stood at 13.62 times at September end, that of MSCI India Index was 29.06 times. Global money managers use MSCI indices to allocate funds across asset classes in emerging and advanced economies.

FII selling in secondary markets

Interestingly, FIIs continue to sell shares in the secondary or cash market, according to NSE data. In four out of five fiscal years through August 2024, they remained net sellers. As of August end, NSE had a 93% share in the cash market.

After net buying shares worth ₹1.29 trillion in FY21, FIIs net sold equities worth ₹2.83 trillion, ₹2.28 trillion, ₹15,468 crore and ₹98,127 crore in FY22, FY23, FY24 and FY25 (as of end August), respectively, on NSE’s secondary market.

NSDL data shows that the purchase in the ‘primary market and others’, and purchase-sale in stock exchanges to be ₹2.74 trillion inflow in FY21, ₹1.4 trillion outflow in FY22, ₹37,632 crore outflow in FY23, ₹2.08 trillion inflow in FY24 and ₹31,993 crore inflow in the current fiscal (FY25) through August.

‘Primary market and others’ is defined as purchases in the primary market (IPOs), through preferential allotment and rights issues, etc. Stock exchanges data pertains to purchase and sale in the secondary market and purchase and sale of mutual fund units in the secondary market.