FII in 3 days Rs. 31,000 crores of selling Indian stocks. Will it get worse?

A ‘Buy China, Sell India’ trade is playing out in emerging markets as FIIs in the first 3 days of October bought around Rs. 30,718 crore worth of Indian shares have been sold.

The sudden U-turn in FII’s strategy is mainly due to the outperformance of Chinese stocks.

“The Hang Seng Index has gained 26% in the past one month and this rally is expected to continue as Chinese stocks are undervalued and are expected to perform well in response to the monetary and fiscal stimulus implemented by the Chinese economy. Chinese authorities,” Dr. . V.K. Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Escalating geopolitical tensions between Israel and Iran also underscore the risk assets.

Crude prices have rallied in recent days, though no sharp jump has been seen so far. The situation may change if Israel attacks oil installations in Iran.

“On the macro side, manufacturing PMI fell to 56.5 in September from 57.5 in August, services PMI fell to 57.7 in September from 60.9 in August, central government spending was 1.2% lower in 5MFY25 and GST collection growth moderated to 6.5%. August 2024. FPI Flows are expected to remain volatile,” said Srikant Chauhan, head of equity research at Kotak Securities.

If the momentum in Chinese stocks continues, FIIs may continue to sell in India where valuations are elevated, analysts said.

Vijayakumar said, “How long the optimism lasts remains to be seen. Large-scale FII selling in financials, especially frontline banking stocks, has made their valuation attractive. Long-term domestic investors can use this opportunity to buy high-quality banking stocks, Vijayakumar said.

The broader geopolitical landscape adds complexity to the situation. While geopolitical tensions in the Middle East have raised concerns, global equity markets, including the US, have shown resilience.

However, the duration of this FII selling trend will depend on the sustained momentum in the Chinese markets.

(disclaimer: Recommendations, suggestions, opinions and views given by experts are their own. (These do not represent the views of The Economic Times)