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Robust FII buying in Indian shares over the past three months has been a result of robust global markets, despite many economic headwinds such as persistently high European inflation, the US debt ceiling, and China’s slowdown.
Foreign institutional investors (FIIs) concluded May with their third consecutive month of buying looking back to March 2023. Overall, on a YTD basis, FII inflow in May was the highest of 2023 so far. According to NSE statistics, FII net buying in May was a staggering Rs 236,945.55 Cr, while they sold off Rs 209,089.07 Cr of their Indian equity holdings, representing a net inflow of Rs 27,856.48 Cr.
Whereas, domestic institutional investors (DIIs) are the net sellers in May after December 2022. In January 2023 DIIs recorded their highest inflow of Rs 33,411.85 Cr. However, in the month of May, DIIs inflow reached Rs 135,524.29 Cr whereas they offloaded Indian equity shares of Rs 138,830.64 Cr, taking their net outflow to Rs 3,306.35 Cr in May.
However, in the F&O segment, FIIs were the net sellers in May after a 2-month winning streak since March. In F&O segment, FIIs inflow stood at Rs 82,490.01 Cr whereas they offloaded shares of Rs 82,995.41 Cr, resulting in an outflow of Rs 505.40 Cr.
Commenting on the sectors to book profit after looking into the FIIs trend, A R Ramachandran, Co-founder & Trainer-Tips2trades said “Strong global markets despite several economic headwinds including stubbornly high European inflation, US debt ceiling, China slowdown has led to strong FII buying in Indian equities over the past 3 months as well. Looking ahead, if inflation in India stays at even current levels, FII buying could continue in June as well. However major Indian indices are at slightly elevated levels and hence a mild price correction in Nifty up to 17950 looks likely. Sectors like FMCG & PSU banks which had done well over the last few months could see profit booking in June.”
Commenting on the global outlook after FII landscape being favourable, Utkarsh Sinha managing director Bexley advisors a boutique investment bank firm said “India’s competitive landscape in the FII landscape is favorable for the foreseeable short to medium term: it is one of the few large economies globally that has a goldilocks tailwind combo of strong growth projections, stable and broadly predictable regulatory regime with ease of capital repatriation and a young and skilled demographic entering the workforce. This gives rise to secular tailwinds that make broader equity investments a fairly safe bet for India, be it public or private.
At the same time, we need to be cautious about the very goldilocks nature of this situation: an even slight change in any of these parameters could serve to upset the applecart. If India doesn’t tighten its control over regulatory uncertainty, or makes moves that limits capital flows in any way, or indeed if China decides to open up shop for business once again, that could severely and irrevocably alter capital flow directions which would be hard to revert.”
Commenting on the future outlook for FIIs trend, Chirag Singhal, Senior Equity Analyst, First Water Capital Fund said “FIIs have been buying Indian equities, helping the Indian markets to rise. Corporate India reported a decent set of results in Q4FY23. Lower raw material and freight costs have yet to be completely factored in results that we may see in the future quarters. Global markets are down, but we remain optimistic about the Indian story and firms that rely on domestic demand.
India is one of the few economies that has seen sustained robust demand with india being seen as a bright light in comparison to what is happening elsewhere in the world. We are hopeful that smart money will continue to flow into the country and possibly into infrastructure, power, and defence.”
