fii selloff: FIIs follow 'sell in May and go away' mantra ahead of election results with Rs 25,600 crore sell-off

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By selling Indian stocks worth nearly Rs 25,600 crore last month, foreign institutional investors (FIIs) followed the old Wall Street adage of 'Sell in May and go away'. FIIs have dramatically increased their net shorts positions in index futures from 5,000 contracts on May 29 to 3.18 lakh on May 31.

"The main trigger for the FPI selling has been the outperformance of the Chinese stocks. The Hang Seng index boomed 8 % in the first half of May triggering selling in India and buying in Chinese stocks. Another reason was the spike in US bond yields. Whenever the US 10-year bond yields rose above 4.5 % FPIs sold in emerging markets like India and moved money to bonds," said V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.


The FII sell-off is also being attributed to the relatively high valuations and weak earnings, particularly in the financial and IT sectors where foreign investors have a high allocation.

FII activity in June will be crucially influenced by the election results to be announced on June 4th and the market response to that.


If the election results ensure political stability the market FIIs are likely to turn buyers.Strong GDP growth, manageable inflation, political stability, and the expectation that the RBI is done tightening monetary policy create a positive outlook for the Indian economy, marking a turnaround from their net selling in May, said Vipul Bhowar, Director, Listed Investments, Waterfield Advisors.Apart from the exit polls, the market on Monday will also likely react to the outcome of the PCE data in the US, Fed’s preferred gauge of inflation, as well as the monthly auto sales numbers. Economic data such as India services and manufacturing PMI will also be released next week while RBI will also announce its interest rate decision on June 7.
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