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Oct’24 saw the Indian equity markets (Nifty 50 index) correcting ~6% (closing 8% lower from its all-time high). India saw FII outflows of INR 1.1 tn (USD 13.5 bn) due to a weak earnings season, expensive Indian market and inflows into other markets. FII selling was however counter-balanced by INR 1.07 tn (USD 12.9 bn) of domestic inflows. A key driver of this, is the increasing retail participation in equity markets through SIP flows (up from INR 31 bn/month in Apr’16 to INR 253 bn/month in Oct’24).

FII selling impact could have been sharper (but for DII support): Significant FII outflows have historically led to sharp corrections in the Indian markets. In most instances wherein the Nifty 50 has declined > 5% in a month, FII flows have been negative. Interestingly, despite the highest-ever monthly FII outflows (INR 1.1 tn) in Oct’24, Indian equity markets fell only 6%, remaining fairly resilient due to DIIs counter-balancing with INR 1.07 tn (USD 12.9 bn) of inflows. A key driver of this is the increasing retail participation in equity markets through SIP flows (up from INR 31 bn/month in Apr’16 to INR 253 bn/month in Oct’24).

Weak earnings, >+1 SD valuations, other exciting opportunities drive FII outflows: Intense selling across FIIs can be attributed to: (1) A weak earnings season (Analysis of 157 companies out of the JMFL coverage of 275 suggest 44% (69 companies) missed Q2 estimates, 41% (65 companies) beat Q2 estimates while 15% (23 companies) were inline); (2) An overvalued Indian equity market (Nifty valuations through Jul’24 to Sep’24 suggest Nifty 1 year forward was >+1 standard deviation (21.6x) above mean;  (3) Flow of foreign capital into other markets. (China, Japan and Taiwan have seen inflow of foreign capital)

Indian sectoral flows for Oct’24: Sectors which saw the highest outflows included BFSI (-USD 3.11 bn), Oil & Gas (-USD 2.55 bn), FMCG (-USD 1.38 bn) and Autos (-USD 1.24 bn). Chemicals (+USD 70 mn) and Metals (+USD 17 mn) were the only sectors which witnessed inflows.

FII Monthly Flow Tracker – October 2024

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