FIIs sold India in 3 out of last 10 years; will they turn net buyers in June?

The age-old saying ‘sell in May and go away’ rang true this time around as foreign institutional investors (FIIs) withdrew close to Rs 5,000 crore from equities and over Rs 17,000 crore from the Indian debt market last month. However, there is chance that the selling might abate in June.

Anecdotal evidence suggests that FIIs turned net sellers in 3 out of the last 10 years when they pulled out up to Rs 10,577 crore from Indian equity markets in 2008. The next big selloff occurred in 2013 when they withdrew Rs 9,318 crore. 2015 saw outflows of Rs 5,480 crore.

After two months of back-to-back selling, experts feel FIIs might turn net buyers and provide much-needed stability to the markets. Foreign investors have poured in more than Rs 2,200 crore in equities in the last six trading sessions on the back of easing global crude oil prices and revival in corporate earnings.

This move follows a net outflow of over Rs 15,600 crore in equities during the last two months. Prior to that, foreign portfolio investors (FPIs) had pumped in Rs 11,655 crore in March.

“FIIs have been net sellers for the past couple of months. This trend could well reverse in June considering that the uncertainty with respect to the Monetary Policy Committee meet is behind the market, global crude oil prices have corrected 10 percent in the past couple of weeks, which is also reflected in the cooling off of domestic fuel prices, and depreciation of the rupee viz-a-viz the dollar has been reigned in. Progress of the monsoon expected to be positive and would support investor sentiment. Nonetheless, June is expected to be a month with a positive bias, albeit not without volatility,” Jayant Manglik, President, Religare Broking, said.

FIIs turned net buyers in 2014 as they bought nearly Rs 14,000 crore in Indian equities. In 2010, they invested Rs 10,244 crore and in 2016 they purchased Rs 5,174 crore.

If we look at the price returns, both bulls and bears exercised equal influence. Data from the last 10 years suggests that bears took control of the market in 5 out of the last 10 years. Things are evenly balanced when it comes to price returns, but experts feel there is no clear trend emerging in 2018 and things could go either way.

“Historical data is random and does not provide any kind of insight into what may be happening today. Market action is random and its performance in June might have nothing to do with what happened in the past,” Nikhil Kamath, Co-founder, Zerodha, said. He added so far in June neither the bulls nor bears are winning. “We see this trend continuing and do not expect unidirectional action in June.”

Events to watch out for in June:

There are plenty of events that could turn the tide either ways for D-Street. A meeting of central bankers in the US and Europe will be in focus. Besides that, crude oil prices, which spiked in the latter half of last week, will be in focus along with the rupee.

In the near term, Manglik expects the market to maintain a positive bias. “Volatility may be induced if the global trade war rhetoric escalates or commentary from the US Fed is relatively more hawkish than what the market expects. While the Indian Meteorological Department has forecasted a normal monsoon, its progress will be actively tracked by the market for any significant deviations.”