FIIs turn net sellers in October; will the trend reverse post Diwali?

NEW DELHI: Foreign institutional investors (FIIs), which have remained new buyers so far in the year 2014, have turned net sellers so far in the month of October. But analysts are hopeful that the trend should reverse in November, pushing the benchmark indices to fresh record highs.

Overseas investors have pulled out a massive Rs 3,755 crore from the Indian stock markets since the beginning of this month, mainly on account of profit booking, said a PTI report.

Foreign investors were gross buyers of equities worth Rs 32,484 crore till October 17 and sellers to the tune of Rs 36,239 crore, registering a net outflow of Rs 3,755 crore ($612 million), according to the latest data.

If history is anything to go by, then in the past 10 years FIIs have booked profits in the month of October because they have to meet maturity dates, say analysts.

Even though FIIs remain net sellers in the month of October, the trend is likely to change in November, said market expert A K Prabhakar, who thinks that fresh highs for the Nifty can come in the second week of November when FIIs turn net buyers.

Prabhakar is of the view that this is not the first time that FIIs have become net sellers in October. In the last 10 years, “we have witnessed a similar trend, because they have to meet their maturity date.” However, the selling is less fierce in India compared to other countries such as Taiwan and Korea, he added.

The Indian markets bounced back with strong volumes after closing on a muted note last week, after the government announced a slew of reform measures over the weekend, such as diesel price deregulation and hike in natural gas price, post the victory in recently-held elections in Maharashtra & Haryana.

The BJP has got a majority in Haryana and will form its government for the first time in the state. It has emerged as the single largest party in Maharashtra, but will have to patch up with old ally Shiv Sena to form a government.

The market has given a thumbs-up as the 0BJP has won the Haryana State assembly polls and is the single largest party in Maharashtra. The result would add heft to the already formidable political weight of the Prime Minister.

“Definitely, this will help the Modi government to implement the reforms. If global cues remain positive and the Nifty sustains above the psychological level of 7840, then the market is likely to show an upside rally with the crossing of 7960 and may test the life-time high in the near future,” said Rohit Gadia, Founder & CEO, CapitalVia Global Research Ltd.

“We have seen an uptrend in FIIs in this calendar year 2014, but they were net seller to the tune of Rs 3755 crore in the month of October so far. Now the BJP government can roll out aggressive reforms that had enthused global & domestic investors into driving up the Indian equity market to dizzying heights this calendar year,” he added.

The YTD FII inflow of US$13.2bn is significantly lower than US$19.8bn seen in calendar year 2013, despite the fact that the Indian markets look much better fundamentally.

“We believe that the global funds are sitting on the sidelines and the specific oil & gas decisions over the week-end should help tilt the balance,” said global brokerage firm CLSA in a report.

“Our meetings last week with 50+ US-based investors reveals that some amount of scepticism has been building up against Modi due to perceived lack of concrete steps and some the US investors have booked profit and reduced India weight in the recent months. Global investors haven’t jumped onto the India bandwagon as yet,” added the report.

After focusing on foreign policy (attracting FDI being the central theme), analysts believe that the domestic decision making will now gather pace. They expect some action on coal block auctions, coal & gas price pooling, disinvestments, highway awards, GST etc.

The winter session of Parliament is expected to be between 24th Nov and 23rd December. The session is expected to see some important legislations such as raising FDI in insurance, labour laws etc.

The hope in investors has strengthened post the election results that pending decision can be cleared with respect to key reforms and the economy should be able to spur in near-term as a result of initiatives taken by government.

“FIIs clearly have to balance what is happening globally and what is happening in India. Clearly on India’s front things are extremely positive, the recent changes in terms of oil reforms, in terms of labour reforms, in terms of certain financial reforms are extremely positive for change in sentiment which over a period of time should reflect in an upcycle in terms of growth rates,” said Alroy Lobo, Chief Strategist and Global Head Equities Asset Management, Kotak Mahindra AMC.

“We are not immune to what is happening globally, but India is one of the few markets where the turn has been positive. Our view is that the winter session of Parliament as well as the budget could further see reform measures taken by the government,” he added.

Lobo is of the view that as far as the globe is concerned, come December, January, you should see some amount of quantitative easing emerging from Europe and also from Japan, which will counterbalance the kind of QE tapering or the QE wind down of the US and that will help support equity markets both in India and overseas.