Foreign institutional investors shift focus to IPOs, sell nearly $10 billion in secondary markets

FIIs have been net buyers in the primary market, accumulating $645 million so far this month.

Data from the National Securities Depository Limited (NSDL) shows that FIIs were net sellers in the secondary markets for 12 consecutive sessions, selling around $9.9 billion by Oct. 17.

Provisional figures from the National Stock Exchange (NSE) also revealed that FIIs sold shares valued at approximately Rs 5,485 crore on Oct. 18.

October marked the highest monthly outflow of FII funds, surpassing the previous record set in March 2020 when outflows totaled around $8.3 billion.

At the same time, the primary market saw robust activity, driven by significant IPOs such as Garuda Construction & Engineering and Hyundai Motor India Ltd, with a combined value of over Rs 28,000 crore.

Additionally, five SME IPOs worth Rs 267 crore were launched during the month.

Analysts attribute these FII outflows to several factors.

Markets had already factored in aggressive US Federal Reserve rate cuts after an unexpected 50-basis-point cut in September.

However, recent US economic data has indicated stronger-than-expected growth, suggesting a “no-landing” scenario, which has triggered a rally in the US dollar over the past three weeks and driven up US bond yields.

This rise in yields typically hurts capital flows into emerging markets.

India’s FII outflows are also linked to China’s stimulus measures, which have provided a significant boost to Chinese markets.

Additionally, Indian markets are trading at historically high valuations, which analysts believe are unsustainable given the current economic environment, characterized by slowing growth, persistent inflation, high taxes, and elevated interest rates.

Disappointing earnings reports across various sectors, coupled with these challenging macroeconomic conditions, have further contributed to the continuous outflow of FII funds from Indian markets.