However, buying of around $2.2 billion worth of equities by domestic institutional investors last week limited the downside on Dalal Street. Sensex ended 1.6% lower on a weekly basis as global markets recouped losses after ‘ Black Monday’ sell-off.
Going forward, analysts say if the market continues to rise, FIIs are likely to press more sales since Indian stock valuations continue to remain elevated, particularly in relation to valuations in other markets.
“FIIs generally do not heavily invest in the Indian market for two consecutive years, as per historical patterns. Last year, the Indian market saw record inflows from FIIs, leading to expectations of muted inflows this year. The average monthly inflows from FIIs in 2024 were Rs 15,000 crore, which has come down to Rs 4,000 crore year-to-date in 2024,” says Sunil Damania, Chief Investment Officer, MojoPMS.
While short-term volatility in FII flows is expected, the long-term outlook remains positive.”FII holding in India is already at a 10-year low. India is a unique large country with stability in government along with double-digit economic growth, double-digit corporate earnings growth and double-digit corporate ROE. In my view, FIIs can’t remain out for a long period of time,” Alok Agarwal, Head – Quant & Fund Manager, Alchemy Capital Management, said.Even in case FIIs remain net sellers, domestic funds are expected to provide support.”Domestic funds have greater confidence in the long-term growth story of India, driven by sectors like manufacturing, pharmaceuticals, and renewable energy. The growing financial literacy and an increasing investment culture among Indians have boosted fund inflows, further fuelling market optimism,” Agarwal said.