FIIs remain net sellers in Indian stock market for 12 months in a row. Can the trend change?

After remaining net sellers for twelve consecutive months, foreign institutional investors (FIIs) are ramping up purchases in Indian equities. In the last five trading sessions, FIIs have invested nearly $899 million in Indian stocks.

The shift in sentiment comes on the back of tax relief measures and supportive actions by the Reserve Bank of India and FTSE rejig, which have boosted investor confidence and encouraged greater participation in the equity market.

On 19 June, FIIs purchased equities worth ₹31,442.87 crore and sold shares worth ₹26,583.80 crore, leading to net inflows of ₹4,859.07 crore. This marked their highest single-day net buying since February 3, when they had recorded provisional net purchases of about ₹5,236 crore, according to exchange data.

Meanwhile, in contrast, domestic institutional investors (DIIs) remained net sellers on Friday, offloading equities worth ₹1,159.64 crore. During the session, they purchased shares worth ₹18,020.49 crore while selling stocks valued at ₹19,180.13 crore.

Market sentiment has improved on the back of a mix of domestic and global developments. A key driver can be the progress in negotiations between the US and Iran, which has helped ease crude oil prices and reduced a major macroeconomic risk for India. Softer oil prices are likely to bolster the country's inflation outlook and provide support to the overall macroeconomic landscape.

“FIIs have once again started showing interest in Indian equities after remaining cautious for a considerable period. The recent improvement in sentiment can largely be attributed to easing geopolitical tensions in the Middle East, particularly after signs of progress in the U.S.-Iran peace discussions. This has resulted in a cooling of crude oil prices, which is a positive development for India as lower oil prices help ease inflation concerns and support the country's economic outlook,” said Ravi Singh, Chief Research Officer from Master Capital Services.

Harshal Dasani, Business Head – INVasset PMS, believes that the recent shift in FII flows from net selling to net buying is a constructive signal, but the sustainability through June and into the coming months depends on a specific set of variables aligning.

Dasani further explained that this continues will depend on three specific factors. First, the trajectory of the US dollar and 10-year yields, both of which have a direct inverse correlation with EM allocations. Second, the absence of fresh geopolitical shocks, with the Middle East situation being the most material near-term risk. Third, the absence of a competing EM allocation theme, particularly any aggressive Chinese stimulus announcement that could redirect flows.

“The honest qualifier is that FII flows have historically been choppy and that a few days of net buying does not yet constitute a trend. The constructive read is that the structural India case, including the growth differential, demographic dividend, and capex cycle, continues to support FII interest at the margin. The base case is for continued net buying through June, with the risk profile tilted to flow choppiness rather than sustained reversal,” Dasani said.

On the contrary, V K Vijayakumar, Chief Investment Strategist, Geojit Investments Limited, said that the FII selling tapering off is the most likely scenario.

“ If FIIs are to turn buyers in India, the ongoing AI trade, particularly in South Korea and Taiwan, should end. We don’t know when this will happen,” he added.

Disclaimer: This story is for educational purposes only. The views and recommendations above are those of individual analysts or broking companies, not Mint. We advise investors to check with certified experts before making any investment decisions.

Vaamanaa covers business and stock market news. Started in 2020, she has been producing news on digital platforms for over 4.5 years now. She writes on markets, commodities, IPOs, and industry. She has worked for news channels like Jagran New Media and Business Insider India. You can reach out to her at vaamanaa.sethi@htdigital.in.

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