MARKETS CRASH AS FOREIGN INSTITUTIONAL INVESTORS PULL OUT RECORD AMOUNT

Foreign institutional investors (FIIs) pulled out a record amount in January, causing market sentiment to turn bearish and stocks to plummet. Gross equity purchases by FIIs plunged to a 15-month low of $24.93 billion, marking the lowest since October 2023.

Data from NSDL shows that FIIs' gross equity sales this month stood at $32.60 billion, indicating a net outflow of $7.67 billion so far in January. This is accompanied by a significant decline in FIIs' assets under management (AUM), which fell to an eight-month low of $786 billion as of January 15.

The sharp decline was primarily driven by a broader market correction. According to Akshay Chinchalkar, Head of Research at Axis Securities, the magnitude of selling this year has been extraordinary, especially considering that January historically averages a 0.6% decline over the past two decades.

Furthermore, foreign investors continued their relentless outflow for 19 consecutive days as of January 29, withdrawing an additional Rs 2,600 crore. This is comparable to only one day of net inflows on October 21, 2008, when the sell-off was not as pronounced.

The benchmark indices Sensex and Nifty have fallen over 3% each so far this month, while broader indices like BSE MidCap and BSE SmallCap have lost over 8%. Additionally, FII ownership in Indian equities stood at 16.1%, slightly above the 12-year low recorded in October 2024.

In the derivatives segment, FIIs are also raising their bearish positions in future and options markets. They turned net short on index futures on October 6, just 10 days after they peaked. The Nifty has mirrored their positioning with remarkable accuracy, making analysts closely watch short positioning trends.

FIIs recently maxed out at 350,000 contracts for their short positions but have since started to shrink. With this trend in mind, investors and experts are now closely monitoring market developments, advising caution before taking any investment decisions.