MUMBAI: Rising interest rates in the US and Europe have resulted in FIIs pulling out a whopping $21.3 bn (Rs 1.62 lakh crore) from local shares in the calendar year to date, the highest-ever net sale by foreign investors in Indian stock markets in less than five months.
The FII selling has dragged nearly half of Nifty 50 shares into a bear market. “When interest rates rise in developed markets such as the US, the risk-free rate of return drastically reduces, causing foreign investors to dump emerging market shares and head for the safety of the dollar,” said Sudip Bandyopadhyay, group chairman, Inditrade Capital.
The sale of shares by FIIs has coincided with the Nifty 50 and Sensex30 correcting a little over 7% each from the beginning of the year. While on the index level, the correction seems tame, the fall in individual blue-chip shares from their 52-week highs through the last traded price on May 24 is much steeper.
For instance, a fifth of Nifty stocks have fallen 30% or more from their 52-week highs. These include the likes of TechMahindra, Wipro, Zee, Hindalco, Bajaj Finserv, etc. Nearly three-tenths of the constituents, including UltraTech, HDFC Bank, ONGC, Dr Reddy’s Lab, Titan, have fallen over 20%, indicating that a total of 24 index constituents are already in a bear market, as per data from IndiaCharts. A significant part of the fall has happened in 2022.
A stock, or a financial asset, slips into the bear market when it falls more than 20% from its recent highs.
Bandyopadhyay expects FII selling to continue apace, at around Rs 32,000-Rs 33,000 crore on average a month, until the US Fed pauses rate hikes. Since March, the US Fed has raised the benchmark Fed fund rates by 75 bps to 0.75-1% from near zero, causing FIIs pulling out of EMs like India.
“If the selling continues the way it has been since January, we could possibly correct by another 5-8%,” added Bandyopadhyay. Well-known value investor Vijay Kedia said that “calling a bottom” amid continued FII selling was “near impossible.”
The FII selling began in earnest from October last year when both Nifty and Sensex hit their peaks – at 18,604.45 and 62,245.43. From there both the indices are down 13%. Since October, FIIs have sold shares worth Rs 2 lakh crore. That’s almost 4 times more than the Rs 52,987 crore they sold during 2008 at the time of the Great Financial Crisis.
- Nifty, Sensex down 13% YTD
- A fifth of Nifty stocks down 30% or more from recent highs
- Nearly half of Nifty 50 in a bear market
- Since Oct 2021, FII selling at Rs 2L cr, almost 4 times since the GFC struck in 2008-09