Foreign Portfolio Investors (FPIs), have shifted from heavy selling to increased buying of Indian equities, anticipating a clear BJP/NDA win in the general elections, analysts said. 

This trend reversal, is evident, as FPIs became net buyers last week, notably net investing ₹4,670 crore, in a single day on May 23, following the RBI’s announcement of a record ₹2.11 lakh crore dividend for the government, they said. 

This FPI stance is interesting, given that both Nifty and Sensex also touched all-time highs, in the last two sessions this past week, they noted.

K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that FPIs massive selling, has ceased and they have even turned buyers in recent days. 

“Going forward, as clarity emerges on the election front, FPIs are likely to buy in India, since they cannot afford to miss the post-election results rally. Actually, the rally may begin even before the election results”, he said. 

Vijayakumar said that the situation —post a view that it won’t be an easy victory for the BJP/ NDA in the wake of decline in voter turnout in the first three phases of voting—is once again slowly changing in favour of the ruling dispensation. 

The base case scenario appears to be a clear verdict in favour of BJP/NDA, he added.

Vipul Bhowar, Director, Listed Investments, Waterfield Advisors, said that the bumper dividend payout of ₹2.11 lakh crore from the Reserve Bank of India (RBI) to the central government for the fiscal year 2023-24, would have caused FPI to reconsider its strategy and temporarily halt selling.

However, it may be premature to conclude that the “Sell India buy China” stance has been completely reversed. “Ultimately, it comes down to a trade-off between expected growth and current valuations. China appears inexpensive at current levels, while India may become expensive”, Bhowar said.

Vijayakumar noted that FPI selling which began as a trickle in April, 2024 turned into a flood in May. As per NSDL data, FPIs net sold equity for ₹ 22,046 crore through May 24. FPI selling in the cash market was massive at ₹33,460 crore. So far this calendar year, FPIs have net sold Indian equities worth ₹19,824 crore.

The FPI heavy selling in first fortnight of May, was triggered by the massive outperformance of Chinese stocks, he said. 

Vaibhav Porwal, Co-founder, Dezerv, said, that up until the week ending on May 17, 2024, FPIs had withdrawn a total of ₹27,081 crore from the market. “Despite last week being shortened due to general election polling, and the bank holiday for Buddha Purnima, the markets experienced a shift in trend, with FPIs recording net inflows of ₹ 9,234 crore”, he added.

Meanwhile, India VIX— a fear gauge—hit the highest level of 21.81 this past week, on May 21, and this was also the highest since April 19when general elections commenced in the country. India VIX had hit an all time low of 10.2 on April 23.

Porwal noted that India’s VIX has doubled over the past month, reaching a level of 21.0. This spike is consistent with the typical behavior of the India VIX before major events. However, compared to the last three election periods, the current VIX level, is significantly lower than the historical trend. In the 12 days leading up to the election results, the VIX ranged between 26 and 49 during the 2009, 2014, and 2019 election years. 

“As we approach the result day, we anticipate a further increase in the VIX, followed by a decline post-election, mirroring the patterns observed in previous election periods”, Porwal added.

FPIs debt strategy

After being net sellers to the tune of ₹10,949 crore in April, 2024, FPIs have come back with buying interest in debt market with net inflows of ₹ 10,949 crore in May, 2024, data with depositories showed. So far this calendar year, FPIs have pumped in ₹46,918 crore in the Indian debt market, ahead of India’s bond inclusion in J P Morgan Global Bond Index -Emerging Markets in June, 2024.

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