Foreign investors sold $1.3 billion worth of Indian stocks this week. Will the sell-off intensify?

Led by a confluence of global factors such as a more pronounced than expected weakening of the US labor market, the divestment of yen carry trade operations and the increase in geopolitical tensions in the Middle East, FII Withdrew $1.3 billion from Indian stocks market in the week.

However, the purchase of around $2.2 billion in actions by domestic institutional investors Last week limited the fall of Dalal StreetThe Sensex closed 1.6 per cent lower on a weekly basis as global markets recouped losses following Black Monday. sell-off.

Going forward, analysts say that if the market continues to rise, IFIs are likely to push for more selling from India. stock valuations remain high, particularly relative to valuations in other markets.

“IFIs typically do not invest heavily in the Indian market for two consecutive years, as per historical patterns. Last year, the Indian market saw record IFI inflows, leading to expectations of subdued inflows this year. Average monthly IFI inflows in 2024 were Rs 15,000 crore, which declined to Rs 4,000 crore so far this year in 2024,” says Sunil Damania, Director Investment Official, MojoPMS.

While short-term volatility in IFI flows is expected, the long-term outlook remains positive. “IFI holdings in India are already at a 10-year low. India is a unique large country with governance stability coupled with double-digit economic growth, double-digit corporate earnings growth and double-digit corporate ROE. In my view, IFIs cannot stay out for a long period of time,” said Alok Agarwal, head – quantitative and fund management, Alchemy Capital Management. Even in the event that IFIs remain net sellers, domestic funds are expected to provide support. “Domestic funds have increased confidence in India’s long-term growth story, driven by sectors such as manufacturing, pharmaceuticals and renewables. Rising financial literacy and a growing investment culture among Indians have boosted fund inflows, further fuelling market optimism,” Agarwal said.