Foreign Institutional Investors (FIIs) Sell Off Financial, IT, Construction, Oil & Gas, FMCG Holdings in First Half of May

Foreign institutional investors (FIIs) offloaded over $3 billion worth of Indian stocks during the first half of May. According to data from the National Securities Depository Limited (NSDL), over 90% of this selling activity was concentrated in five specific sectors: financial services, information technology, construction, oil and gas, and fast-moving consumer goods (FMCG).

Foreign Institutional Investors (FIIs) pulled out approximately ₹9,687 crore from the financial services sector, ₹5,574 crore from the IT sector (extending their selling streak to three consecutive months), ₹3,811 crore from the construction sector, ₹2,808 crore from the oil and gas sector (marking their fourth consecutive month of selling), and ₹1,158 crore from the FMCG sector.

On the contrary, the buying activity of domestic institutional investors (DIIs) mitigated the market's decline. Data from the exchanges indicates that DIIs acquired shares valued at ₹64,400 crore during the same period.

The decline in IT and FMCG stocks is attributed to lackluster earnings in both industries. FMCG companies faced sluggish sales and stagnant profitability as a result of elevated expenses. The IT sector's performance in fiscal year 2024 indicates a need for prudence in fiscal year 2025.

Additionally, FIIs sold in other sectors: construction materials (₹802 crore), power (₹792 crore), metals and mining (₹735 crore), automobiles and auto components (₹706 crore), consumer durables (₹659 crore), and telecommunication (₹272 crore).

Analysts attributed the massive selloff to election-related anxieties. Investors, becoming risk-averse, reduced their equity holdings to mitigate potential surprises. Some analysts theorized that foreign institutional investors (FIIs) were prompted to sell by global market pressures. Others connected the sell-off to expectations of lower voter turnout, potentially influencing the election results.

A few analysts suggest that FIIs are selling now to buy back at lower levels later, boosting their cash reserves.

On the flip side, FIIs were buyers in consumer services (₹733 crore), Capital goods (₹376 crore), realty (₹233 crore), and healthcare (₹172 crore).

The consumer services sector witnessed eight consecutive months of buying by FIIs, while the capital goods sector saw 14 consecutive months of buying.

“The adjustments are slated for May 31, and India is expected to witness a net inflow of upwards of $2.5 billion in FII passive flows. With 13 inclusions and 3 exclusions, the net stock count post-rejig will be 146 for India in the MSCI Standard/EM Index. Additionally, there will be a net inclusion of 14 stocks in the Smallcap Index, bringing India’s total stock count in the small-cap index to 497,” Nuvama said in a report.

Abhilash Pagaria, Head-Nuvama Alternative & Quantitative Research said, “I remain extremely bullish on India, especially with active participation from mutual funds and HNI/retailers in the Indian equity markets. We should anticipate many more inclusions in the EM Index. We are still at the tip of the iceberg.”

In the May review, YES Bank, Suzlon Energy, Vedanta, Zomato, and Polycab India witnessed an increase in their weightages within the MSCI Global Standard index, as announced by the index aggregator on May 15. PB Fintech Ltd (Policybazaar), Sundaram Finance, and NHPC joined the MSCI Global Standard Index alongside Solar Industries, Mankind Pharma, Bosch, Indus Towers, and Canara Bank.