FPIs exit markets after economic package announcement.
On 12th May 2020, Prime Minister Narendra Modi announced an economic package of ₹ 20 lakh crore under government’s Atma Nirbhar Bharat Abhiyan / Self-Reliant India. The national movement of Atma Nirbhar Bharat Abhiyan / Self-Reliant India initiated by Prime Minister Narendra Modi is to support India’s all small and local business. He emphasized on slogan viz. #VOCALFORLOCAL.
Scamper among FPIs:
Approximately 40% of FPI sales in cash and derivatives sectors were observed in second week of May. The data derived from stock exchange indicates some break up figures such as FPI’s sold stock worth ₹6,486 crore. Additionally, sales worth ₹2,869 crore and ₹737 crore were observed in index futures and stock futures respectively. These sales was executed in just 4 trading days in the second week of May 2020. The data further states that since the announcement of economic booster package of worth ₹20 lakh crore, FPIs buying activity has drastically declined.
Decline in NIFTY:
On 13th May 2020, Nifty observed its peak of 9,584 within the span of 2 days. Nifty abruptly fell by 534 points and on 15th May 2020 Nifty observed its low of 9,050. In the same time period, it has also been observed that there is a sudden decline in Nifty Bank. Nifty Bank dropped 1,440 points from 20,122 to 18,663.
If we compare between Indian stock market and global stock market, the sudden change is only observed in Indian stock market and not in global stock market. The Nifty and Nifty Bank indices are two of India’s largest traded derivatives, and both of these derivatives are struggling under pressure from FPI’s as they are selling their investment in a massive quantity since the announcement of economic booster package by Indian government. In second week of May 2020, the indices decreased by 5.6% and 7.15% respectively, compared to their respective highs.
Support from DII’s:
During the same period i.e. in the second week of May, there was no support from Domestic institutional investors (DIIs). Purchases from domestic institutional investors (DIIs) was also low, and they purchased stocks of only ₹1,896 crore in cash. There are several rules and restrictions on the companies who are doing business of mutual funds & insurance on derivative speculations. Therefore, they are virtually absent in the field of futures and options.
Massive sales by FPIs:
The media report noted that FPIs have been selling massively since the second week of May 2020 and have been slamming markets after the announcement of the financial package by Indian Government. In addition, the figures apart from second week of May 2020, the FPI’s net figures appear to be clearly positive, this is a bit misleading.
Loopholes while extracting data:
Exchanges will not adapt these facts when foreign companies sell shares and FPIs buy them This was the case on 7th May 2020, when a massive block of shares entered the market of Hindustan Unilever (HUL). Shares of HUL worth ₹26,300 crore were sold by international investors on 7th May 2020. The FPI’s bought a total worth ₹19,000 crore from the market in the same period, while DIIs bought stocks from the market in the same period worth ₹3,818 crore. Nearly all FPI’s and DIIs purchases were in HUL for that particular period.
When these ₹19,000 crore investments are removed from Hindustan Unilever shares, then FPI’s were net sellers in the cash and future segments. Sellers and major buyers of HUL were both international entities, but only those registered as FPIs are required to report their numbers to Securities and Exchange Board of India (SEBI) and stock exchanges viz. NSE & BSE. Meanwhile, net buying by DIIs in the month of May 2020 is just ₹1,056 crore after adjusting the activity of Hindustan Unilever.