FII selling in May edging towards a 12-month high

Foreign institutional investors (FIIs) seem to be sticking with the ‘sell in May’ dictum.

FII outflows in the last 12 months are set to touch their highest as domestic headwinds and moderating risk appetite globally lead to unloading of local equities.

FIIs have been net sellers of equities by Rs7,400 crore so far this month, the highest since last May when they had pulled Rs9,341 crore.

“While the broad theme of emerging market potential remains, there is a recognition of headwinds such as inflation and interest rate tightening for countries such as India. Some growth is being sacrificed to control inflation. Though India is not being abandoned, capital is not expected to come in at the same rate as before,” said Rajeev Thakkar, chief executive officer at Parag Parikh Financial Advisory Services.

FIIs have also been selling based on quarterly results and company-specific news.

“Long-only funds seem to be churning as there have been a few negative surprises from heavyweights in the banking and oil sectors,” said Sandeep Singhal, co-head, institutional equity derivatives at Emkay Global Financial Services.

India-dedicated exchange traded funds, or ETFs, have also been sellers though the intensity is not like in January and February.

“India ETF outflows continued for a third consecutive week. There were outflows of $96 million this week and $306 million over the past three weeks,” said Sunil Jain, Sailesh Jain, Biju Samuel and Sandeep Tandon, analysts at Quant Capital, in a weekly note on last Friday.

Since April 28, the major India-dedicated ETFs such as Ishares MSCI India ETF, Lyxor ETF MSCI India and Ishares BSE Sensex India have seen a 12.22%, 8.41% and 10.83% fall, respectively, in their assets under management compared with a 6.6% fall in the benchmark index.

Going ahead, experts see challenging times for Indian equities over next couple of quarters or so.

“The next two quarters are expected to be testing ones because of global factors such as the eurozone issues and the winding down of the second round of quantitative easing. Local issues such as fears that aggressive tightening by the Reserve Bank of India could affect demand and lead to earnings downgrades are also expected to keep markets muted. It is hoped that the interest rate cycle would peak out in the next six months or so and some stability will result in better performance from the markets,” said Anshu Kapoor, head-private wealth division at Edelweiss Securities.

“Nifty levels of around 5,350 are extremely critical for the long-term market trends as violation of that would project a deeper downside. After a short- to-intermediate uptrend situation and some sideways action, we are not ruling out an eventual violation of this support over the medium term,” said the Quant analysts.