Despite the trend reversal on Dalal Street during Friday deals, foreign institutional investors (FIIs) continued to remain net sellers on Friday last week. The FIIs sold out Indian stocks worth nearly ₹1500 crore in the last session of the week. On 27th October 2023, FIIs sold out Indian stocks to the tune of ₹10,860 crore whereas they bought shares worth ₹9,360 crore on Friday.

According to today's FII DII data, FIIs will continue to be net sellers in October 2023. They have sold around 2,600 crore in Indian stocks until October 27th, 2023. This level of FII sales in October 2023 is the highest since January 2023. FIIs sold Indian stocks of Rs 41,464.73 crore in January 2023. Nonetheless, DIIs have extended full support to the Indian stock market by purchasing shares worth Rs 23,437 crore this month.

Why are foreign institutional investors selling Indian stocks?

"The heightened uncertainty surrounding the Israel-Hamas conflict made FII skittish," says Omkar Kamtekar, Research Analyst at Bonanza Portfolio, "with reports suggesting Iran and other neighboring countries may become embroiled in this conflict." Crude oil prices skyrocketed in the aftermath of the battle, nearing $100 per barrel, worsening the already tense situation. Furthermore, for the first time since the 2008 global financial crisis, the US bond yield reached 5%, forcing investors to shift away from risky assets and towards bonds and other safe-haven assets. With the Federal Reserve committed to lowering inflation to the 2% target rate, there are fears that interest rates could be raised higher as the US economy continues to show resiliency, growing far faster than expected.

The focus is on the strong US dollar

"A strong US dollar makes investing in India more expensive for FIIs, prompting them to sell holdings and convert to their home currencies," Sonam Srivastava, Founder and Fund Manager at Wright Research, said. Concerns about the global economic slowdown cause FIIs to become more risk-averse, lowering their exposure to emerging economies such as India." Srivastava went on to say that the high valuations of Indian shares in comparison to other emerging markets are another cause for FIIs' increased selling. "The current trend is influenced by global economic conditions, but FIIs' long-term investment in India remains positive," said Sonam Srivastava, a finance expert.

Treasury yields in the United States

According to Anirudh Garg, Partner and Head of Research at Invasset, PMS, "The surge in US bond yields has been a major concern." In the United States, the 10-year bond yield has reached levels not seen in nearly a decade, currently standing at 4.98%. This rise is being driven by the US Federal Reserve's efforts to limit inflation, making US bonds an appealing alternative for investors. As a result, foreign institutional investors are shifting their assets to the United States, resulting in less exposure to Indian equities."