FPI Trend: Buy IPOs to Take Advantage of Quotes, Sell Stocks to Cut Losses

In December alone, while FPIs pulled Rs 25,252 crore from the stock markets, they invested Rs 11,782 crore in IPOs. Foreign investors had invested Rs 40,562 crore ($5.40 billion) in the primary market while taking Rs 73,526 crore ($9.80 billion) from the stock markets between Oct. 1 and Dec. 17, according to data from the National Securities Depository Ltd. (NSDL).

In calendar year 2021, FPIs have so far withdrawn Rs 47,126 crore from the stock markets but invested Rs 78,433 crore in the primary market. Aside from a few IPOs like Paytm and Star Health Insurance, FPIs have made money from most of the issues, especially in some unicorns, which entered the primary market this year.

Commercial bankers say foreign investors have been looking at listing gains in IPO investments. They even wanted a larger quota of the anchor investor portion and asked market regulator Sebi to consider several funds of one group as one entity, so that different entities can apply for the IPO as one category.

Most foreign funds, assigned as anchor investors, have sold shares after the 30-day lock-in period.

On the other hand, equity markets are digesting the aggressive stance of major international central banks amid rising Omicron cases and inflation. “As markets around the world continued to calibrate the flows of inflation, monetary policy and Omicron, the beacon of pessimism was also passed on to domestic exchanges. FPIs have been withdrawing daily this month,” said Yesha Shah, head of equity research at Samco Securities.

While the European Central Bank took a small step to reverse the crisis-era stimulus, though keeping borrowing costs low next year, the Bank of England surprised markets by raising interest rates for the first time since the start of the pandemic.

In fact, FPIs have been net sellers since April 2021, excluding September. Bank Nifty has been a major victim of this selloff, with most of the index’s top ten components experiencing a sequential decline in FPI holdings for the quarter ended September 2021. As the US Fed and other major central banks raise interest rates, the FPI will increase outflows in the coming weeks.

In addition, year-end sales of FPIs also play a role as they took gains to show higher returns and profits. In an effort to ramp up its efforts against nearly four decades of high inflation, the Fed indicated that its reign of easygoing policy is coming to an end. The planned acceleration of the $30 billion-a-month winding down will end pandemic-driven bond purchases in March 2022, paving the way for a Fed fund rate hike.

Fed officials expect three rate hikes in 2022, two in the following year and two more in 2024. The well-written trajectory of the rate hike, along with less aggressive than expected policies, provided much-needed comfort and helped US markets recover. “At home, although our central bank did not provide a forecast for the future, Nifty also broke its four-day losing streak and temporarily closed in the green following the Fed’s announcement,” Shah said.