Foreign institutional investors (FIIs), which hold a substantive stake in India’s stock market, are likely to remain net sellers amid redemption pressures and turmoil in global financial markets that would force them to increasingly move to safer assets.
That, analysts and experts said, could keep the Indian market down for some time FIIs have withdrawn Rs 34,176 crore so far this calendar year, according to data from Securities and Exchange Board of India (SEBI), updated until Wednesday.
A negative sentiment of FIIs does impact the Indian market heavily as they hold around 15 per cent of the top 500 shares of the Bombay Stock Exchange that’s available for trading.
According to SEBI, the net investment of FIIs in Indian equities totalled Rs 249,292 crore as on September 17.“The FII outflow has been putting pressure on the market and rupee,” said the head of equity research of a leading global investment banking firm, who asked not to be named.
FIIs will be under pressure as they have to pay off debts taken to invest in emerging markets like India. They also face redemption pressures on account of their investments in the US market.
Investments will move out, but not the ones that are made with a long-term strategy. Funds that are reducing their ratings on India will get out, analysts said. Thus, stability in the US economy and in the global financial system is of utmost importance for the stability in the Indian stock market.
“We are highly correlated with the global market and a fall there will impact the stability here,” said Rajesh Jain, head of research, SMC Global. “Going forward if global markets and investment banking firms do not come out strong, FIIs will be under pressure to withdraw money.”
Among large companies financial giants like HDFC and ICICI Bank have huge FII exposures.