FII Selling and Market Impact: Understanding the Trend
Till February 18th, despite significant selling by FIIs, their overall equity portfolio has only declined by 3%. As per the latest data, their current holdings stand at $7.82 lakh million, down from a peak of $9.30 lakh million in September. However, when compared to last year’s figure of $7.46 lakh million, it’s clear that their overall position has not deteriorated significantly. This suggests that even with heavy selling, the rising stock prices have offset the impact.
FII Selling is Mostly Profit Booking
A closer look at the numbers shows that FIIs have primarily been selling their profits rather than reducing their core holdings. In January 2024, their equity position was at $7.4 billion, and now it stands at $7.8 billion, meaning the bulk of what they sold is their gains rather than a fundamental exit from the market. While many are anticipating a market bottom, it is important to note that FIIs still hold significant assets and can continue selling if they find better opportunities elsewhere.
What Will Change This Trend?
A key factor influencing FII flows is the strength of the US dollar. Currently, with a strong dollar and better returns in developed markets, FIIs continue to move funds out of India. A shift in US policy towards a weaker dollar could reverse this trend. If the US government signals a move towards weakening its currency, it would push capital back into emerging markets like India. However, at present, there are no clear signs of such a shift.
Looking Ahead
As of now, the trend of FII selling appears to be ongoing. Unless there is a change in global monetary policy or the US dollar weakens significantly, FIIs are likely to continue reducing their holdings in Indian markets.
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