Indian Funds Unfazed By Foreign Selloff As Inflow Tops Record Rs 4 Lakh Crore

Even when the rally in India's $5.44 trillion stock market was threatened by a selloff from global funds, domestic institutions went all out to buy on dips, offsetting what could have been a huge plunge.

The offloading of domestic equities by foreign funds that began from hopes of China's revival aided by stimulus blitz exacerbated as the outlook of the domestic economy worsened. This triggered caution that the world's fastest-growing economy might take a breather going ahead.

Further, foreign investors' selloff was aggregated as worries kept growing about the valuation the stocks are quoted at. 

In the last 14 sessions, foreign institutional investors have offloaded domestic stocks worth over Rs 85,700 crore, according to provisional data from the National Stock Exchange.

However, domestic institutions continue to pile on to any offloading by foreign investors. During the same period, domestic investors have mopped up stocks worth nearly Rs 82,500 crore.

This takes the total inflows into domestic stocks powered by local institutions to a record of over Rs 4 lakh crore so far this year, compared to the full year inflow of Rs 1.73 lakh crore in 2023.

This massive selling by foreign institutions didn’t have a serious impact on the market since the entire selling has been absorbed by DIIs, according to V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services. "This trend of FII selling and DII buying is likely to sustain in the near term."

Concerns about a slowing economy began brewing when the tax collection saw a dip. Gross Goods and Services Tax collection growth in September reached 6.5%, marking a 40-month low. The output growth of the eight core sectors declined in the latest reading.

Further, the country's retail inflation rose to a nine-month high of 5.49%, dimming hopes of rate cuts by the Reserve Bank of India.

Foreign institutions have been net buyers of Rs 30,212 crore worth of Indian equities so far in 2024, according to data from the National Securities Depository Ltd., updated till the previous trading day. This is mainly due to the inflows seen in the country's primary market.

Global funds have offloaded stocks worth Rs 41,150.2 crore in the secondary market while they have pocketed stocks worth Rs 71,361.1 crore in initial public offerings, qualified institutional placement and other primary market offerings.

Investors in Indian stocks might be in for more turbulence as India Inc. will likely post muted earnings for the second quarter. The weak topline may weigh on profits, and the earnings slowdown seen in the first quarter is likely to persist in the second quarter, according to Nuvama Institutional Equities.

The benchmark indices, NSE Nifty 50 and BSE Sensex have fallen by about 5.46% and 5.33%, respectively, in the last 14 days after the key gauges hit fresh highs. Nearly 40% of Nifty 50 stocks are in correction mode, according to data collated by NDTV Profit.

Recent data from actively managed mutual funds indicated that asset management companies have begun deploying cash despite valuation woes. Fund houses' allocation toward cash as a percentage of total assets held by actively managed equity schemes fell during September for the first time since April.