FPIs Offload Over Rs 25,000 Crore in Indian Stocks in May, Becoming Net Sellers for Second Consecutive Month

Foreign portfolio investors (FPIs) significantly increased their selling activity in Indian stock markets in May, resulting in a net outflow of Rs 25,586 crore by the end of the month.

This persistent withdrawal from Indian stocks is partly due to a strong US dollar, stubbornly high inflation—especially in the food sector—and uncertainties related to election outcomes.

However, recent trading sessions have shown a slowdown in FPI selling, likely influenced by the strong performance of market indices. Both Nifty and Sensex reached all-time highs recently, yielding substantial gains for investors.

Data from the National Securities Depository Limited (NSDL) indicated that cumulative FPI selling was around Rs 28,000 crore a week ago.

"FPIs have been selling equities on most trading days in May. According to NSDL data, FPIs sold equities worth Rs 25,586 crore in May," stated VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Vijayakumar identified the primary trigger for the FPI sell-off as the outperformance of Chinese stocks, noting that the Hang Seng index surged by 8% in the first half of May, prompting FPIs to shift their investments from India to China. He also cited the rise in US bond yields as a contributing factor.

The outlook for FPI activity in June will be heavily influenced by the election results announced on June 4 and the market's reaction to them.

“If the election results ensure political stability, the market is likely to respond positively, and FPIs may resume buying. However, in the medium term, US interest rates will play a more significant role in influencing FPI flows,” Vijayakumar added.

Vipul Bhowar, Director of Listed Investments at Waterfield Advisors, pointed to high valuations and weak earnings, particularly in the financial and IT sectors where FPIs are heavily invested, as reasons for the FPI sell-off. He also mentioned political uncertainties, global risk-off sentiment, and the attraction of Chinese markets as contributing factors.

In April, FPIs were also net sellers of Indian stocks, driven by geopolitical tensions in the Middle East. Despite being net buyers for the first three months of the year, FPIs sold stocks worth Rs 8,671 crore by the end of April.

Interestingly, even as foreign investors have been net sellers in Indian equities, domestic institutional investors have remained net buyers, offsetting some of the outflows from FPIs.