Chart Beat: FIIs shun Indian equities more than before

Foreign institutional investors (FIIs) have turned their backs on Indian equities. In this calendar year so far, they have remained net sellers in Indian stocks to the tune of 31,388 crore, according to data from the National Securities Depository Ltd.

The month of May saw massive outflows worth 25,886 crore ahead of the Lok Sabha election results. Additionally, the pace of FII inflows into the Indian equity market has diminished compared to previous years.

An analysis by Yes Securities Ltd shows that FII net equity flows as a percentage of India’s total market capitalization over the last ten years have averaged well below 0.5%, significantly lower than the 2003-07 average of 2.5%. A quick turnaround in FII flows is unlikely at least in the near term.

The unexpected outcome of the 2024 general election, with the Bharatiya Janata Party seeing its seat count dip to 240, a loss of 63 seats, has caused concern among market participants about a potential slowdown in reforms by a coalition government. This political shift could lead to a period of policy uncertainty, which could likely lead to market volatility, which in turn would make FIIs cautious and delay a quick turnaround in flows.

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