FPIs adopt contrarian game plan: Invest in IPOs, sell in stock market

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Foreign portfolio investors (FPIs) are taking a contrarian approach in the domestic capital markets by selling in stock market and investing in the IPO (initial public offering) market. While FPIs have invested over Rs 23,000 crore in the IPOs, they have pulled out around Rs 11,000 crore from stock market amid valuation concerns in November so far.

FPIs have made net investments of Rs 14,051 crore this month so far, according to the National Securities Depository Limited (NSDL) data. FPIs had invested in several IPOs, which hit the primary market this month, indicating their appetite for unicorns going for listing on the stock exchanges. “The FPI buy figure is inclusive of the large primary market investment of Rs 23,180 crore during this period. So, the actual stock market transaction is selling of Rs 11,719 crore for November up to 19,” said V K Vijayakumar, chief investment strategist at Geojit Financial Services.

The total FPI investment in IPOs is expected to cross Rs 50,000 crore in calendar year 2021. They had invested Rs 1,570 crore in FSN E-Commerce and Rs 1,400 crore in PB Fintech.

For the first half of November, FPIs have been sellers in banking and even in performing sectors like IT. “The trend indicates that FPIs are likely to turn sellers at every rise since most foreign brokerages have a ‘sell’ call on India on concerns of stretched valuations. But retail and domestic institutions may turn aggressive buyers if the market dips sharply,” he said.


Eyeing unicorns

FPIs have made net investments of Rs 14,051 crore in November so far, according to NSDL data. FPIs had invested in several IPOs which hit the primary market this month.

According to stock exchange data, domestic institutions made net investments in Rs 9,663 crore in the cash market in November so far. While FPIs are exiting on valuation concerns, domestic institutions have been absorbing stocks sold by FPIs.

“The important point to note is that the old scenario where FPIs representing smart money dictated market trends is over for the present. Domestic institutions flush with money and the exuberant retail investors are calling the shots now. This can change if a major trigger causes a big pullback from the present lofty levels. We are in a period of uncertainty,” said an analyst.

Retail investors are using the mutual fund route to invest in the stock markets. In the equity and growth category, all schemes, barring ELSS and value/contra schemes, reported positive flows while in the hybrid category except for arbitrage and hybrid aggressive or balanced funds, the rest including majorly balanced advantage and dynamic asset allocation schemes reported continued wide acceptance.

Assets under management in the equity- and hybrid-oriented schemes rose by almost one-third during April-October to Rs 13.12 lakh crore and Rs 4.76 lakh crore, respectively, as of October 31, from Rs 9.80 lakh crore and Rs 3.57 lakh crore, respectively, as on April 30, the Association of Mutual Funds in India (Amfi) said.

Amfi said balanced advantage funds saw the largest inflows of Rs 11,219 crore in October. A major chunk of this money will be going into the equity basket.

Going forward, rising inflationary pressure will continue to haunt global markets as fears of rate hikes will pump out liquidity from emerging markets like India, analysts said.

Domestic indices were hovering with a negative bias throughout the weak tracking volatile global markets in the wake of inflation woes. The Sensex ended lower at 59,636.01 in the bygone week. UK’s rising annual inflation rate was reported at 4.2 per cent in October from 3.1 per cent a month ago, forcing investors to remain sidelined. Additionally, robust US October retail sales data, which rose 1.7 per cent, failed to pump optimism into global markets.

“On the domestic front, India’s WPI in October spiked to 12.54 per cent from 10.66 per cent in September owing to the rise in prices of crude petroleum and manufactured products. Similarly, India’s retail inflation rose to 4.48 per cent from 4.35 per cent led by a surge in food prices. The weak listing of India’s largest IPO, Paytm, further impacted domestic sentiment,” said an analyst.