In sharp contrast, domestic institutional investors (DIIs) have remained consistent buyers, purchasing equities worth Rs 44,144 crore so far in June. Their sustained buying has helped offset FII outflows and provided stability to the markets.
“The dominant trend in the market so far in June is the inconsistent activity of FIIs alternating between buying and selling, while DIIs have been consistent buyers every single day,” said Dr. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “FII selling is getting completely eclipsed by DII buying, keeping the market resilient.”
Despite the selling pressure, benchmark indices have shown resilience. So far in June, the Sensex is down just 0.4% and the Nifty 50 has slipped 0.13%, largely supported by strong domestic flows.
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Valuations and Yields Driving FII Strategy
FIIs appear cautious about high market valuations and are also reacting to global macro uncertainties, including firm U.S. bond yields. India’s 10-year benchmark yield has fallen over 50 basis points this year to around 6.2%, while the 5-year yield has declined 80 bps. This has narrowed the Indo-U.S. bond yield differential to a 21-year low of around 170 basis points, making Indian debt less attractive to global investors.
“FIIs have been consistently selling in the debt market due to the low differential between Indian and U.S. bond yields,” Vijayakumar noted. “With inflation and interest rates trending lower in India, bond yields remain under pressure.”
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Geopolitical Risk Looms
The broader risk-off sentiment was also intensified by geopolitical tensions after Israel launched airstrikes on Iran. With Iran reportedly retaliating and fears of a wider conflict emerging, global markets are on edge, and FII flows could be further impacted in the coming days.
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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of the Economic Times)
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