The foreign institutional investor (FII) selling is likely to decline in days to come as the economy is doing well, prospects for earnings growth are improving, and mutual fund SIPs are performing well, analysts said on Saturday.
In December so far, FIIs have sold equity worth Rs 15,959 crore through the exchanges.
This FII sell figure has been completely eclipsed by the domestic institutional investor (DII) buying for Rs 39,965 crore during this period, said market watchers.
“Sustained selling in India when the prospects for growth and earnings look bright is not a sustainable policy,” said Dr. VK Vijayakumar, Chief Investment Strategist, Geojit Investments Ltd.
A healthy feature of the investment behaviour of retail investors is the steady inflows into mutual fund SIPs, which have been consistently above Rs 29,000 crore during the last three months.
SIP inflows in November remained almost steady at Rs 29,445 crore, according to data released by the Association of Mutual Funds in India (AMFI).
According to Vijayakumar, this has enabled the DIIs to absorb the sustained selling by FIIs.
“FIIs have been sustained sellers in December, so far, selling on all days. It would be difficult for the FIIs to sell continuously and maintain a high short position in the market in the context of healthy SIP inflows, particularly when the economy is doing well and the prospects for earnings growth are improving,” he noted.
According to analysts, it is also important to understand that rupee depreciation, sustained FII selling, delay in the finalisation of US-India trade deal and the ongoing AI trade are all temporary drags on the markets.
In November, both FIIs and DIIs were net buyers (to the tune of USD 40 million and USD 8.7 billion, respectively) in the Indian equity market.
Over the last 12 months, the Indian primary markets have seen FII net inflows to the tune of Rs 823 billion (USD 9.5 billion) while secondary markets have seen FII net outflows of Rs 2,144 billion (USD 24.5 billion), according to a note by JM Financial.
In November, India’s weight in the MSCI Emerging Markets Index was 15.8 per cent against 15.2 per cent in October and 19.9 per cent in November.
According to analysts, the most important factor that will dictate the direction of the market is the earnings growth, and this looks promising for FY27.
