Foreign institutional investors (FIIs) sold $4.1 billion worth of Indian equities in September, reversing 84% of their purchases over the previous two months, as the domestic market underperformed emerging market peers. Meanwhile, domestic mutual funds (DMFs) witnessed a rebound in equity inflows, although rising systematic investment plan (SIP) discontinuations emerged as a concern.
According to a note by CLSA analyst Vikash Jain, the Nifty 50 declined 6.1% in September, underperforming emerging markets and Asia ex-Japan by around six percentage points in US dollar terms. All sectors ended lower, with information technology (IT) and automobile stocks leading the decline, while telecom and healthcare were relatively resilient.
FII selling continued into October, with outflows reaching another $3.6 billion during the month so far, the note said. Non-India dedicated active funds accounted for $9 billion in selling in September, partly offset by $5.8 billion of buying by non-India dedicated passive funds.
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FIIs also changed their sectoral allocations, increasing their relative weight in financials by 56 basis points and turning neutral after three months of being underweight.
They also trimmed their underweight positions in energy and autos by 35 bps and 20bps. Flls also took their underweight stance on IT to a record low of 1.2 ppt by adding 18 bps to their relative weight in the sector.
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These additions were funded by a 47 bps and 30 bps cut in the overweight positions in discretionary stocks excluding autos and healthcare. Communication services and utilities also saw a reduction in their relative weight by 8 bps and 6 bps, CLSA said.
Meanwhile, Industrials remained the largest overweight for Flls at 1.8 ppt.
Domestic Mutual Fund Inflows Rebound
Equity inflows into domestic mutual funds, including exchange-traded funds (ETFs), rose 25% month-on-month (MoM) to Rs 59,200 crore in September. Active fund inflows increased 21% to Rs 40,900 crore, while passive inflows climbed 35% to Rs 18,300 crore.
Monthly SIP contributions reached a record Rs 32,500 crore. However, the ratio of discontinued SIPs to new SIPs surged to 116%, an 18-month high, compared with 81% in August.
Mid-cap and small-cap funds recorded fresh inflow highs of Rs 7,800 crore and Rs 9,000 crore, respectively. In contrast, large-cap funds attracted just Rs 860 crore after two consecutive months of redemptions.
The divergent trends highlight continued domestic investor support despite renewed foreign selling, even as rising SIP discontinuations warrant monitoring.
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