Sectors That Saw The Biggest Foreign Outflows In October

Foreign investors were net sellers for the second consecutive month in October, due to a surge in U.S. Treasury yields and uncertain geopolitical tension from the Israel-Hamas conflict.

FPI witnessed buying in the financial services, automobiles and components, and information and technology sectors.

Overseas institutional investors offloaded $2,950 million, or Rs 24,548 crore, worth of stocks in October, according to data from the National Securities Depository Ltd. They had been buyers since March, after a selloff of Rs 28,852 crore in January and Rs 5,294 crore in February.

During the month, foreign portfolio investors offloaded stocks worth Rs 7,702.5 crore on Oct. 26, according to provisional data from the National Stock Exchange. That's the most so far this year.

There is a direct correlation between interest rates, the strengthening of the dollar, and foreign portfolio investment flows. Currently, both of these factors are pitted against emerging market flows, according to Vaibhav Sanghavi, chief executive officer at ASK Hedge Solutions.

Foreign investors have bought Indian equities worth Rs 92,559 crore so far this year, NSDL data showed.

Foreign investments into India this time appear to be more structural, aligning well with the geopolitical situation that India finds itself in, Shiv Puri, managing director of TVF Capital Advisors, told BQ Prime.

In the current volatile macroeconomic landscape, it has been the Indian retail investor who has been a bulwark of the market, according to N Jayakumar of Prime Securities.

These are the investors who consistently buy stocks during market downturns, invest through systematic investment plans, and remain steadfast in the face of significant outflows by foreign institutional investors due to global interest rate changes, Jayakumar, managing director of Prime Securities Ltd., told BQ Prime.

Despite the rising concerns over rising bond yields and geopolitical tension, international brokerages continued to remain positive on Indian markets.

Even after experiencing foreign fund outflows in October, India is still the largest recipient of FPI flows so far this year among emerging markets. The FPIs were sellers in Thailand, Taiwan, the Philippines, Malaysia, Indonesia, and Vietnam, according to Bloomberg data.

Shrikant Chouhan, Head of Research (Retail), Kotak Securities

"FII flows are likely to stay volatile in emerging markets, including India, due to weak global factors. The renewed uptick in U.S. bond yields has led to risk-off sentiment amongst investors who are deploying funds in safe haven assets," Chouhan said.

The West Asia conflict and mixed second-quarter earnings so far have made investors jittery about the near-term prospects of domestic markets, leading to sell-offs, according to Chouhan.

"Once the valuations start becoming attractive and volatility reduces, foreign inflows could make a comeback," he said.

VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services

"The FII selling trend witnessed in September and October continued in early November, too," Vijayakumar said.

This selling trend is unlikely to continue going forward since the main trigger for FII selling, rising bond yields, has reversed, Vijayakumar said.

The main trigger for this reversal in bond yields is the subtle dovish commentary from Fed chief Jerome Powell that "despite elevated inflation, inflationary expectations remain well anchored", according to Vijayakumar. The market has interpreted this statement as the end of the rate-hiking cycle. That’s why yields have corrected sharply.

"FII selling is likely to be subdued going forward. They may even turn buyers; do not miss the rally in the Indian market," he said.

Kunal Sodhani, vice president, Shinhan Bank (Global Trading Centre)

The major reason for foreign investors turning net sellers has been rising U.S. Treasury yields and DXY, according to Sodhani.

"The weak U.S. jobs (NFP) report triggered a strong market reaction, sending the U.S. dollar sharply lower, which in turn is positive for equity markets. For Nifty, 18,900 acts as support, while 19,500 is the immediate resistance," Sodhani said.

Financial services saw the largest outflow at $1418 million, or Rs 11,801 crore, in October. In September, there was an inflow of $345 million, or Rs 9,959 crore.

Financial services turned sellers in August after witnessing inflows for nine consecutive fortnights. During the month, the Nifty Financial Services Index rose by 3.06%, according to Bloomberg data.

Information & Technology witnessed the second largest outflow at $392, or Rs 3,262, and turned sellers in October. In September, it witnessed the fourth-largest inflow of $227 million, or Rs 1,886 crore.

During the month, the Nifty IT fell by 3.78%, according to Bloomberg data.

The sector witnessed the third-largest outflow at $362 million, or Rs 3,013 crore. In previous month, oil & gas sector saw the second-largest outflow at $630 million, or Rs 5,231 crore.

Telecommunication services witnessed the largest inflow of $213 million, or Rs 1,768 crore, in the month. There was an outflow of $229 million in September.

Capital goods witnessed second-largest inflow at $103 million, or Rs 857 crore, in October. In September there was an inflow at $614 million, or Rs 5,100 crore.