As FII outflows pick up, DII buying shows ‘we will do it our way’

After sustained buying in the last six months, foreign Institutional Investors (FIIs) turned net sellers in September, pulling out approximately $2 billion, as rising US bond yields and crude prices weighed on the market sentiment. The trend continues unabated in October FIIs selling equities worth nearly $600 million so far. The FPI sell-off has been partly offset by domestic inflows of $2.6 billion in September and $450 million in October.

FII outflows from India are part of the broader sell-off taking place in other emerging markets (EM) but the country recorded the second-largest net outflow in September, trailing Taiwan. The impending rate hikes in the United States have resulted in higher bond yields and a stronger dollar. The firming up of bond yields in the US may have also led investors to seek the comfort of the less risky US treasuries against EMs. However, on a calendar year-to-date (CYTD) basis, India has seen the highest net inflows by FPIs at $14.7 billion, more than double the second-ranking Korea at $6.3 billion among EMs.

India is the preferred market with a stable government while also offering the best earnings visibility. With that said, Indian markets are still relatively more expensive than other global markets. With China being relatively cheaper, it needs to be seen whether, in the near term, FIIs will move there instead of India when the EM inflows resume. For the time being, the focus remains on the domestic flows and we can take a cue from Frank Sinatra — ‘We will have to do it our way’.