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    October FII outflow highest in 18 months; should D-Street investors be worried?

    October FII outflow highest in 18 months; should D-Street investors be worried?

    October FII outflow highest in 18 months; should D-Street investors be worried?
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    By Sandeep Singh   IST (Published)

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    Foreign institutional investors (FIIs) have turned bearish on Indian equities of late. What does it mean for investors on Dalal Street?

    Foreign institutional investors (FIIs) have net offloaded Rs 5,476 crore ($732 million) worth of shares in November already, according to provisional figures released by stock exchanges. This comes on the heels of net sales of Rs 13,550 crore ($1.8 billion) last month -- the highest single month net sales since since March 2020.
    Should investors be worried?
    The heavy selling by FIIs in October, however, did not stop Indian benchmarks from hitting record highs, thanks to strong inflows from retail investors—directly as well as through mutual funds.
    Here's how the FII flow has been like in the recent past:
    MonthFlow
    Crore rupeesMillion dollars
    Jan-2012,1231,708
    Feb-201,820265
    Mar-20-61,973-8,348
    Apr-20-6,884-904
    May-2014,5691,929
    Jun-2021,8322,890
    Jul-207,5631,018
    Aug-2047,0806,294
    Sep-20-7,783-1,052
    Oct-2019,5412,661
    Nov-2060,3588,132
    Dec-2062,0168,420
    Jan-2119,4732,658
    Feb-2125,7873,539
    Mar-2110,4821,444
    Apr-21-9,659-1,294
    May-21-2,954-389
    Jun-2117,2152,361
    Jul-21-11,308-1,513
    Aug-212,083284
    Sep-2113,1541,792
    Oct-21-13,550-1,807
    Nov-2021 (till Nov 2)-5,476-769
    And here's how the market has performed during this period:
    The evident, though not too sharp, U-turn by foreign investors comes at a time when the likes of Morgan Stanley have downgraded Indian equities citing expensive valuations.
    Indian equity benchmarks have paused after scaling a series of peaks in much of 2021. The liquidity created due to low, pandemic-era interest rates has been a powerhouse for the Indian capital market.
    In 2021 so far, FIIs have been net sellers only in April, July and October. Analysts say more data needs to be monitored to assess the trend going forward.
    Motilal Oswal Asset Management Company's Santosh Kumar Singh does not see FIIs remaining bearish on India for a long time. "I don't expect much pain for a longer duration," Singh, Head of Research at Motilal Oswal AMC, told CNBCTV18.com.
    "Over the years, India’s dependence on FIIs has reduced, the participation of retail as well domestic institutions is now significant and hence even if FIIs remain bearish for some time, the market may not correct meaningfully," he said, when asked whether the shift in FII flow may cause more pain for Indian investors. 
    The October effect
    There are others too who believe that the phenomenon may be temporary.
    "The month of October normally sees FIIs selling due to maturity redemptions, after which, November and December have normally seen inflow," AK Prabhakar, Head of Research at IDBI Capital Markets, told CNBCTV18.com.
    "We need to watch the data for the next 5-6 days to get a better picture of the situation," he said.
    Is the growth story still intact?
    A slew of macroeconomic data point to an impending recovery in the economy. That at a time when central banks around the world are gearing up to trim their pandemic-era boosts to fight the slowdown.
    While valuations remain at elevated levels, most analysts believe that the long-term outlook remains intact for Indian equities.
    "India is trading at one of the highest valuations ever and it's premium to emerging markets is also at a very high level. This has led to some downgrades by global houses. However, another fact remains that India would be one of the fastest-growing large economies in the world," said Singh, who believes that overall earnings seem to be in line with Street forecasts. 
    Despite some disappointments on margins by some commodity consuming sectors, the overall earnings growth seems to meet analysts' expectations, he said. 
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