FII sell-off surpasses ₹1 lakh crore in October 2024: Here are key factors behind relentless FIIs selling

SUMMARY

The FIIs remained net sellers in the cash segment so far in October, with total outflows reaching ₹1,04,018.94 crore as of October 29, 2024. The gross sales by FIIs month-to-date stood at ₹3,71,737.2 crore, while the gross purchases reached ₹2,67,718.26 as of October 29.

FII selling surpasses ₹1 lakh crore so far in October: Key factors behind record outflow

Indian stock markets traded under pressure in October due to record sell-offs by foreign institutional investors (FIIs). The total outflows by FIIs surpassed ₹1 lakh crore by October 29, marking the highest-ever offloading in a month.

The FIIs remained net sellers in the cash segment so far in October, with total outflows reaching ₹1,04,018.94 crore as of October 29, 2024. The gross sales by FIIs month-to-date stood at ₹3,71,737.2 crore, while the gross purchases reached ₹2,67,718.26 as of October 29.

Indian stock markets have mostly seen volatile sessions so far in October amid continued FII outflows, coupled with other factors like subdued Q2 results and escalating geopolitical tensions. Meanwhile, the benchmark NIFTY50 dropped more than 5.5%, while the SENSEX tanked 5.1% in October so far.

Here is a look at the possible key factors behind the record outflows by the FIIs in October:

High valuations and muted Q2 earnings

According to experts, Indian markets are currently trading at premium valuations. Despite the correction seen in the benchmark indices, premium valuations in Indian equities have made the FIIs cautious. Additionally, a muted Q2 earnings season has dampened investor sentiment. Major companies such as Maruti Suzuki India Ltd, Bharti Airtel Limited, and Reliance Industries Limited posted results below expectations.

Chinese stimulus

According to a Reuters report, the Chinese government is considering approving a stimulus package of 10 trillion yuan ($1.4 trillion) in the coming years to address local governments’ debt risks. The Chinese government's investment in boosting the economy has led to FIIs considering the Chinese market more rewarding than India. Chinese stocks offer relatively cheap and attractive valuations compared to Indian equities.

A report by Bloomberg also said that the fiscal stimulus is likely to be approved at a meeting of the Chinese government to be held between November 4 and November 8. The proposed 10-trillion yuan package consists of 6 trillion yuan of debt, which will be raised over three years, including 2024, and 4 trillion yuan worth of bonds, which will be used to fund regional governments’ purchases of idle land and properties over the next five years, the report added.

Global economic shifts

Earlier in September, the US Federal Reserve announced an interest rate cut, reducing half a percentage point or 50 basis points from the benchmark lending rates. Lower interest rates have a positive impact on equities and the overall economy. Consequently, they made US markets attractive and led to a nearly 7% rally for US equities in the past month after the rate cut, thus leading to some cuts in exposure to global equities by FIIs.

Additionally, macroeconomic uncertainties, such as the rising tensions in the Middle East between Israel and Palestine and the upcoming US Election, have negatively impacted investor sentiments, making them more risk-averse.

Heavy sell-offs by FIIs amid the change in the global economic scenario could be part of a portfolio rebalancing effort.

While the sell-off appears intense, the inflows by domestic institutional investors (DIIs) have helped the Indian markets compensate to some extent in October. Month-to-date, the net purchases by DIIs stood at ₹99,221.81 crore in the cash segment as of October 29.

Benchmark indices have recovered somewhat this week. Both NIFTY50 and SENSEX closed in the green on Monday and Tuesday but lost some steam to close lower on Wednesday. NIFTY50 closed at 24,340, down 0.51% or 126 points, while SENSEX closed below the 80,000 level at 79,942, down 0.53% on October 30.

*FII sell-off surpasses ₹1 lakh crore in October 2024

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8bit Market Desk is a team of journalists who passionately cover stock markets, the economy, commodities, the latest business trends, and personal finance.