FPIs become net sellers of equities in September 2022

July was the first month when there was a turnaround in FPI sentiments after 9 months of FPI selling. Between October 2021 and June 2022, FPIs sold nearly $33 billion of equities in Indian market. July 2022 saw tepid FPI inflows of $618 million followed by a hefty inflow of $6.44 billion in August. However, it looks like September 2022 is back to square 1 with FPIs on the sell side. The month started with a bang, as FPIs continued the frenzy of August. However, the tables turned in the second after the Fed hiked rates and resulted in net FPI selling in equities in the month of September 2022. The table below captures the gist.
 

What do we gather from the above table?

    • The FPIs were net buyers till around the middle of the month and even up to the third week of September. The pressure was accentuated after the Fed announced a 75 bps rate hike for the third consecutive policy. In addition, the Fed committed to be hawkish till inflation came down sharply. That has created risk-off sentiments in the market.

    • Recession fear is a big factor. With global central banks joining in the chorus to hike rates, there is a distinct fear that a global economic slowdown could push most of the global investors away from the vulnerable emerging economies to the developed markets. That has also led to sharp FPI outflows in the last few days of the month.

    • FPIs are playing it safe ahead of the second quarter results where they believe that the first signs of top line pressure may be seen. Till now, the pressure was on the margins. Now the pressure is likely to show on top line as weak global demand starts to show. That could lead to a downwards rating of company valuations and the FPIs surely want to avoid that scenario.

    • Lastly, there is the rupee factor. In fact, the rupee works both ways. On the one hand, the FPI outflows tend to weaken the rupee. On the other hand, when the rupee is looking vulnerable, the FPIs tend to move out quickly since it negatively impacts their dollar returns. FPI money flowed back into India in August and first half of September hoping for a bottom of 80/$. Now that is breached with limited defence from the RBI. That set off the panic buttons among the FPIs in the last week of September.

As of 29th September close, the FPIs have sold Rs3,750 crore worth of equities in the month on a net basis. That may not look too intimidating in isolation, but it is disappointing for 2 reasons. Firstly, the FPI flows have turned from net positive to net negative and quite sharply. Secondly, this net FPI selling comes after an encouraging month like August when FPIs infused $6.4 billion in a single month. Indian investors were surely looking for a better scripted FPI story in the month of September.