- July 28, 2022
- Posted by: Ramkumar
- Category: Posts
FII Sell-Off in Indian Stock Markets
This week, i wrote a post on how 𝐈𝐧𝐝𝐢𝐚𝐧 𝐞𝐪𝐮𝐢𝐭𝐲 𝐦𝐚𝐫𝐤𝐞𝐭𝐬 𝐠𝐞𝐭 𝐚𝐟𝐟𝐞𝐜𝐭𝐞𝐝 𝐛𝐲 𝐭𝐡𝐞 𝐜𝐫𝐚𝐬𝐡 𝐢𝐧 𝐒&𝐏 𝟓𝟎𝟎 𝐢𝐧𝐝𝐞𝐱. Thus, i looked at the latest 30 days’ trading history of FIIs/DIIs to look at the impact of the sell-off leading to corrections in Indian stock markets.
I believe there is nothing fundamentally wrong with Indian markets except rising crude oil prices. Inflation is not a severe problem for us as the US because in the US, despite the hikes in fed rates, inflation does not show any sign of cooling.
Yesterday, when talking to a senior executive in Goldman Sachs, i asked him why the firm is looking to exit its investments in India as India looks fundamentally strong against other markets. He responded that due to 𝐟𝐞𝐝 𝐫𝐚𝐭𝐞 𝐡𝐢𝐤𝐞𝐬, 𝐭𝐡𝐞 𝐜𝐨𝐬𝐭 𝐨𝐟 𝐜𝐚𝐩𝐢𝐭𝐚𝐥 𝐡𝐚𝐬 𝐢𝐧𝐜𝐫𝐞𝐚𝐬𝐞𝐝, and with the fed limiting the supply of USD, the 𝐝𝐨𝐥𝐥𝐚𝐫 𝐡𝐚𝐬 𝐬𝐭𝐫𝐞𝐧𝐠𝐭𝐡𝐞𝐧𝐞𝐝 𝐚𝐠𝐚𝐢𝐧𝐬𝐭 𝐨𝐭𝐡𝐞𝐫 𝐜𝐮𝐫𝐫𝐞𝐧𝐜𝐢𝐞𝐬. Thus, despite the strong fundamentals in Indian markets, the 𝐈𝐧𝐝𝐢𝐚𝐧 𝐫𝐮𝐩𝐞𝐞 𝐰𝐢𝐥𝐥 𝐜𝐨𝐧𝐭𝐢𝐧𝐮𝐞 𝐭𝐨 𝐟𝐚𝐥𝐥 𝐚𝐠𝐚𝐢𝐧𝐬𝐭 𝐭𝐡𝐞 𝐔𝐒𝐃. Therefore, it is prudent for them to take the capital back and invest in high-yield fixed deposits.
Further, the DIIs in India are trying to compensate for the FII’s sales, and most of the money for DIIs comes from retail investors. With the strong possibility of the 𝐔𝐒 𝐠𝐞𝐭𝐭𝐢𝐧𝐠 𝐢𝐧𝐭𝐨 𝐫𝐞𝐜𝐞𝐬𝐬𝐢𝐨𝐧, 𝐭𝐡𝐞𝐫𝐞 𝐢𝐬 𝐧𝐨 𝐫𝐞𝐚𝐬𝐨𝐧 𝐰𝐡𝐲 𝐈𝐧𝐝𝐢𝐚 𝐰𝐢𝐥𝐥 𝐧𝐨𝐭 𝐠𝐞𝐭 𝐢𝐦𝐩𝐚𝐜𝐭𝐞𝐝. In that scenario, it is difficult for DIIs to fund capital because retail investors would not have enough savings due to higher inflation and want to deposit their money in banks rather than mutual funds.
Thus, in my view, 𝙙𝙚𝙨𝙥𝙞𝙩𝙚 𝙩𝙝𝙚 𝙨𝙩𝙧𝙤𝙣𝙜 𝙛𝙪𝙣𝙙𝙖𝙢𝙚𝙣𝙩𝙖𝙡𝙨 𝙞𝙣 𝙄𝙣𝙙𝙞𝙖𝙣 𝙢𝙖𝙧𝙠𝙚𝙩𝙨, 𝙩𝙝𝙚 𝙨𝙩𝙤𝙘𝙠 𝙢𝙖𝙧𝙠𝙚𝙩𝙨 𝙨𝙝𝙤𝙪𝙡𝙙 𝙛𝙪𝙧𝙩𝙝𝙚𝙧 𝙨𝙡𝙞𝙙𝙚 𝙩𝙞𝙡𝙡 𝙬𝙚 𝙙𝙤𝙣𝙩 𝙜𝙚𝙩 𝙥𝙤𝙨𝙞𝙩𝙞𝙫𝙚 𝙣𝙚𝙬𝙨 𝙛𝙧𝙤𝙢 𝙐𝙠𝙧𝙖𝙞𝙣𝙚 𝙖𝙣𝙙 𝙐𝙎 𝙞𝙣𝙛𝙡𝙖𝙩𝙞𝙤𝙣 𝙨𝙝𝙤𝙬𝙨 𝙨𝙞𝙜𝙣𝙨 𝙤𝙛 𝙖𝙗𝙖𝙩𝙚𝙢𝙚𝙣𝙩.