FPIs Sell Shares Worth Rs 23,000 Crores In Cash Market, Is China Becoming Attractive?

Foreign Portfolio Investors have net sold in the cash market to the tune of a solid Rs 23,000 crores, so far in November 2021. Their gross purchases have been at Rs 140,015.38 crores, while their gross sales has been to the tune of Rs 163,053.36 crores.

Last few days sees relentless selling pressure by FPIs

	Purchases	Sales	Net sales
November 18	8781.77	12712.39	-3930.62
November 22	11705.76	15144.52	-3438.76
November 23	10101.07	14578.13	-4477.06
November 24	9608.48	14731.13	-5122.65

Relentless selling pressure, is there more exit likely?

The selling pressure has been relentless and many Foreign Portfolio Investors like Blackrock Ind recently said that China looks much better than the Indian markets in terms of valuations.

According to a Bloomberg Report, Blackrock Inc. is trimming its investments in Indian equities and becoming more optimistic on China on attractive valuations amid expectations that policy hurdles will ease next year.

"Valuations are key right now," Belinda Boa, head of active investments for Asia Pacific at the world's biggest asset manager, said at a briefing. "Because of the outperformance we've seen in India this year, on a relative basis, we are starting to take profits and becoming more positive on Chinese growth stocks," she said.

Recently, Goldman Sachs too downgraded Indian Equities citing expensive valuations. According to Goldman Sachs, the Indian equity market is trading near peak 12-month forward PE valuations of 23 times, which is at a record 60% premium to the Asia Pacific ex-Japan region. Morgan Stanley also cut India's rating, citing expensive valuations.

US easing, inflation worries add to concerns for emerging market stocks

The US Fed has decided to trim its bond purchase programme, thus pulling back liquidity. On the other hand bond yields in the US have surged to 1.68%. Each time bond yields rise, they make emerging market stocks even less attractive.

It's clear that bond yields across the globe are set to rise, aggravated by rising inflation. This may lead to a sharp pull back in equities going ahead. What is keeping the Indian markets afloat is the huge amount of liquidity that is flowing into domestic mutual funds. This trend is likely to continue in the future and this may lend some support to the domestic market. So far, domestic investors have bought shares worth Rs 16,000 crores. However, if we see mutual fund holdings, most of them are barely sitting on any cash. We expect the markets to continue to exhibit volatility and it is a good idea to now look at debt, if interest rates rise.

According to Siddhartha Khemka, Head - Retail Research, Motilal Oswal Financial Services Ltd the markets are likely to continue with consolidation given weak global cues, persistent FII selling and premium valuation.

"In the absence of any fresh trigger and subdued sentiments, investors would await for the fundamentals to catch up with valuations. Market could take direction from the US economic data and fears the pace of tapering to be accelerated which could prepone the interest rate hike cycle. It would also track the Covid situation in Europe which could impact the global economic activities. Monthly F&O expiry tomorrow could add to the volatility," he says.