FIIs withdraw Rs 40,000 crore in 9-week-long non-stop selling. U-turn ahead
selling spree in the Indian market, pulling out their money for 9 weeks in a row. In fact, this is the 3rd largest selling streak by FIIs since the year 2000. They have withdrawn Rs 39,794.6 crore in this streak.
What does this mean for the Indian markets?
Historically, it has been observed that whenever FIIs have net withdrawn for 5 or more consecutive weeks, the Indian markets tend to fall. Since 2000, there have been 12 instances where FIIs have pulled out money for 5 or more successive weeks. Of these, the Nifty50 index has fallen 9 times, with an average loss of 9.23%.
However, this time around markets have held their ground and fallen only 3% from September 8 to November 03, 2023.
But what drives the FII selling?
The withdrawal from FIIs can be attributed to a rise in the US 10-year Bond Yields. During the Covid-19 pandemic, these bonds yielded less than 1%. But as inflation soared, the Federal Reserve hiked the interest rates, ferreting the bond yields to a record level last seen during the Global Financial crisis in 2008.
How do these US Bond Yields impact the Indian Indices?
For FIIs, bonds are an alternative investment option to lower their risk.
As the Fed hikes the interest rates, bond prices decrease and the yields increase. This increase in the bond yields leads FIIs to shift their investing paradigm from equity to debt markets.
Historically, FII selling tends to occur during periods of rising US bond Yields.
Quite sporadic, there have been only 3 instances where the selling spree of FIIs continued while US bond yields fell.
The future of this FII selling spree remains uncertain. However, a fortnight ago, the US Fed held onto the interest rates for the second consecutive time.
