HUL Mega-Block Deal Turns Selling FPIs Into Net Buyers In Indian Equities

Mumbai, 25th May 2020: The mega-block deal of Societe-General buying majority of the Hindustan Unilever Ltd (HUL) shares valued over Rs 25,000 crore helped Foreign Portfolio Investors (FPIs) turn positive buyers on the Indian bourses in May till last week. Till last Friday (May 22), FPIs were net buyers in Indian equity market to the tune of Rs 9,000 crore.

Experts believe FPIs will closely watch how India designs its exit strategy from the lockdown to keep COVID-19 cases under check with easing of curbs, and how quickly it revives growth.The inflow comes following a net withdrawal of Rs 6,883 crore in April and Rs 61,973 crore in March on fears of a coronavirus-induced global recession. Prior to that, FPIs had put in over Rs 1,820 crore in February.

According to data compiled from depositories, FPIs invested a net sum of Rs 9,089 crore in the equity markets during May 1 to May 22. However, they pulled out a net Rs 21,418 crore from the debt markets during the period under review.

FPIs were net sellers in the Indian equity market in last 12 out of total 15 trading sessions in May. They were selectively buying in the Indian equities in the current month. Positive FPI flow in the month of May is only due to strong participation by FPI in mega HUL block deal of Rs 25,000 crore on May 7.

Jimeet Modi, Founder & CEO, SAMCO Securities said, “FPIs were seen selling aggressively which is in divergence to their stand in developed markets; since US markets on the back of liquidity and stimulus is attracting global capital for risky assets”.

"Attractive valuation after the sharp correction in the equity markets this year, and significant depreciation of Indian rupee against US dollar provided FPIs a good entry point," said Himanshu Srivastava, Senior Analyst Manager Research, Morningstar India.

He attributed the debt market outflows to the sell-off in global debt markets, FPIs booking profits and also a very high chance that passive debt funds needed liquidity for margins. "Since the COVID-19 pandemic has spread across various countries and regions, foreign investors have turned risk averse. Consequently, they shifted their focus towards safer asset classes such as gold or US dollar, as against investing in fixed income securities of emerging markets like India.

"Here the risks are relatively higher and returns not commensurate with the risk involved," Srivastava said.

He further said foreign investors will be closely watching how India manages the COVID-19 crisis and the macroeconomic situation. Also, India would continue to witness rotational trend. Hence, bouts of sharp net outflows or net inflows from Indian financial markets cannot be ruled out, he said.

"One could expect this trend to stabilise when the situation on the coronavirus front normalises or shows signs normalisation," he added.