The trend of foreign institutional investor (FII) selling in September and October has been closely monitored, and recent data shows that this trend has extended into early November. As per V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, FIIs have offloaded equity worth Rs 3,063 crore through the cash market in the first three days of November. However, there’s a growing sentiment that this selling trend may not persist, given a significant shift in one of its primary triggers.
Changing Bond Yields
The primary catalyst for FII selling in recent months has been the surge in bond yields. The 10-year US bond yield reached a peak of 5% on October 19, creating concerns in the market. However, a notable reversal in bond yields has been observed. Over the last two days, there has been a steep decline, causing the yield to drop to 4.66% by November 3.
This change in the direction of bond yields is attributed to the dovish commentary from US Federal Reserve Chief Jerome Powell. Powell’s statement emphasized that despite elevated inflation, inflationary expectations remain well anchored. In the eyes of the market, this suggests a potential end to the rate hiking cycle, leading to a substantial correction in bond yields.
Subdued FII Selling and a New Outlook
In light of these developments, experts anticipate that FII selling could become subdued in the near future. Some even believe there’s a possibility that FIIs might transition to buyers to seize opportunities presented by the Indian market rally.
Promising Sectors
V.K. Vijayakumar points to specific sectors that are poised to perform well in the coming days. These include frontline banking, automobiles, capital goods, and mid-cap companies in the IT and real estate sectors.
While the trend of FII selling has persisted into November, changes in the global bond market and a more dovish stance from the US Federal Reserve may mark a shift in this pattern. The bond yield reversal is seen as a potential game-changer that could lead to a different investment climate. Promising sectors such as banking, automobiles, capital goods, and IT and real estate mid-caps are expected to shape the future landscape of Indian markets.
