Rama Krishna Sangem
FM Nirmala Sitharaman’s Budget 2024 has thrown a spanner in the works as far as foreign flows into the Indian equities are concerned. Foreign institutional investors (FIIs) who had turned aggressive buyers for the first time in calendar year 2024 (CY24) on a monthly basis, resorted to offloading positions soon after the Union Budget 2024 was presented on July 23.
The FIIs had bought shares worth Rs 25,108.69 crore (net) until July 22, 2024. However, in the next three trading sessions, they net sold shares to the tune of Rs 10,711.70 crore, shows data, thus bringing down their net monthly purchases to Rs 14,396.99 crore thus far in July.
Despite this, the net inflows in a single month this July remains at the highest since the last 13 months. So far CY24, FIIs have net sold stocks worth Rs 1.10 trillion. The sudden reversal in their mood in July is driven by changes in the treatment of capital gains for listed, unlisted and compulsory convertible debentures (CCDs), analysts said.
Double whammy for FIIs
“It has been a double whammy for the FIIs who not only have to cope with the capital gains tax changes, but also a higher securities transaction tax (STT) in the F&O segment and changes in the treatment of CCDs. I see it more as a knee-jerk reaction to the developments. Over the next few months, corporate earnings growth, policy stance of global central banks, geopolitics and the US presidential election will take center stage. They are likely to reassess their stance then,” said U R Bhat, co-founder & director at Alphaniti Fintech,
Their change of stance as regards India, according to V K Vijayakumar, chief investment strategist, Geojit Financial Services, can put the large-caps under pressure, which in turn can pull down markets a bit from the current levels.
FPIs have again turned sellers and this might put further pressure on large-caps even though the FPI selling is being matched by DII buying. The valuation discrepancy — large-caps fairly valued and mid-and small-caps highly valued — continues. Long-term investors should exploit this discrepancy by buying quality large-caps on dips,” suggests V K Vijayakumar, Chief investment strategist at Geojit Financial Services.
Derivatives segment
In the futures & options (F&O) segment, too, the FIIs have reduced long positions in index futures significantly. FIIs net longs stood at 62,000 contracts at the start of August series as against 319,000 long contracts at the start of July series, according to a Nuvama Alternative & Quantitative Research note.
FIIs, however, hold higher long positions in single stock futures. Their open interest in single stock futures stood at 672,000 contracts against 610,000 contracts, in the same comparable period, the note added. The NSE data shows that FIIs index futures long-short ratio stood at around 5:1 till mid-way through the July series; implying 5 long positions in index futures for every bet on the short side.
