The sudden U-turn in FII strategy has been mainly triggered by the outperformance of Chinese stocks.
“The Hang Seng index shot up by 26% in the last one month and this bullishness is expected to continue since valuations of Chinese stocks are very low and the Chinese economy is expected to do well in response to the monetary and fiscal stimulus being implemented by the Chinese authorities,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
The increase in geopolitical tensions between Israel and Iran is also weighing on risk assets.
The crude prices have risen in recent days, although there has not been a sharp spike so far. The situation may change if Israel attacks oil installations in Iran.
“On the macro side, PMI manufacturing weakened from 57.5 in August to 56.5 in September, PMI services weakened from 60.9 in August to 57.7 in September, central government expenditure was down 1.2% yoy in 5MFY25 and GST collections growth moderated to 6.5% yoy in August 2024. FPI flows are expected to remain volatile,” Shrikant Chouhan, Head of Equity Research, Kotak Securities said.If the momentum in Chinese stocks continues FIIs may continue to sell in India where valuations are elevated, analysts said.”It remains to be seen how long the optimism lasts. Massive FII selling in financials especially frontline banking stocks have made their valuations attractive. Long-term domestic investors may utilise this opportunity to buy high quality banking stocks,” Vijayakumar said.
The broader geopolitical landscape adds complexity to the situation. While geopolitical tensions in the Middle East have raised concerns, global equity markets, including the US, have shown resilience.
However, the duration of this FII selling trend will depend on the sustained momentum in the Chinese markets.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)