FIIs Sell Indian Stocks for Eighth Week; DIIs Support Market Recovery

Foreign institutional investors (FIIs) have continued their selling spree in Indian equities for the eighth consecutive week, offloading shares worth Rs 30,294 crore in the most recent trading period. Despite this steady outflow, domestic institutional investors (DIIs) stepped in strongly, purchasing shares valued at Rs 30,313 crore, effectively absorbing the foreign selling pressure and helping the benchmark indices regain some ground.

The Nifty 50 index ended the week at 22,520.45, marking a 0.4% increase compared to the previous week, breaking its eight-week streak of losses. However, the market showed considerable volatility, with the index hitting a fresh 52-week low of 22,180 on Thursday before recovering somewhat by Friday.

Market participants have noted the widening gap between foreign and domestic investor behavior as a notable trend. FIIs have been net sellers for an extended period while DIIs have consistently bought, raising questions about whether domestic buying alone can stabilize the market against ongoing foreign withdrawals and global economic challenges.

Investor Flows and Market Dynamics

October has seen continued selling by foreign investors, who have sold a net Rs 39,779 crore so far this month. Domestic investors have countered by purchasing Rs 40,355 crore worth of equities. Despite the domestic buying support, the Nifty remains marginally below its September-end close of 22,620.45.

Pabitro Mukherjee, Deputy Vice President of Research at Bajaj Broking, explained that while FIIs have been net sellers for the past eight weeks, DIIs' steady buying has limited the Nifty’s decline to about 7.57%, from 24,366.00 to 22,520.45. He cautioned that persistent foreign selling combined with global economic headwinds could keep the market volatile, though domestic purchases may continue to cap losses.

Ravi Singh, Chief Research Officer at Master Capital Services, described the market atmosphere as cautious, characterized by a “tug-of-war” between sustained foreign outflows and robust domestic buying.

Factors Influencing Foreign Investor Sentiment

Several external factors are shaping foreign investment decisions in the Indian equity market. Brent crude prices have remained elevated above $100 per barrel, exerting inflationary pressure. Meanwhile, US bond yields have fluctuated, initially rising before easing, and the Indian rupee has weakened against the dollar, adding to market concerns.

The Reserve Bank of India (RBI) recently increased the repo rate by 25 basis points and shifted its policy stance toward calibrated tightening. This move aims to keep inflation in check and support the currency, which has implications for foreign capital flows.

Singh noted some relief from global financial conditions as the US 10-year Treasury yield dropped from multi-month highs near 5.36% to about 5.24%. This easing has helped reduce immediate capital flight from emerging markets, including India.

He also pointed out a shift in global risk appetite due to a slowdown in the speculative enthusiasm surrounding artificial intelligence (AI). This change has prompted international investors to reallocate funds toward fundamentally strong value stocks and broader market indices.

Mukherjee added that investors will closely watch upcoming inflation data from both India and the US, movements in US bond yields, Brent crude prices, and geopolitical developments, particularly concerning US-Iran tensions. The RBI’s recent policy stance will also be a key focus for assessing future market direction.

Outlook for the Nifty and Market Sectors

The Nifty’s slight weekly gain offers some respite but does not yet signal a full recovery. Singh remarked that the index found support near its trendline and the 100-week exponential moving average (EMA), suggesting the possibility of a short-term technical rebound.

He identified the 22,150-22,200 range as a critical support zone; maintaining levels above this could lead to a recovery toward 22,750 and potentially 23,000, near the 21-day EMA. However, he emphasized that the broader market trend remains weak, and any rebound should be approached cautiously until key resistance levels are reclaimed. Consistent buying momentum will be necessary to confirm a sustainable recovery.

Sector-wise, IT, banking, and financial services stocks led the weekly gains, supported by strong domestic institutional inflows. Conversely, the energy sector's performance remained subdued due to the ongoing volatility in crude oil prices.

In summary, the Indian equity market is navigating a complex environment shaped by foreign investor caution, domestic buying strength, and external economic pressures. Market participants will be watching key data releases and global events closely to gauge whether the current recovery can be sustained or if further challenges lie ahead.

Disclosure: This article was written by Kumar Gaurav, who is not a SEBI-registered research analyst or investment adviser. Neither Kumar Gaurav nor their relatives hold any financial interest in the companies mentioned, as of the date of publication. The views expressed are those of the respective SEBI-registered analysts or brokerages cited and do not represent the opinions of The Economic Times Digital or the author. Readers should refer to original research reports and make investment decisions based on their own evaluations.