Foreign Investors Turn Bearish on NSE: FPI Selloff Surges Amid Market Uncertainties
Foreign portfolio investors (FPIs) seem to be losing confidence in the National Stock Exchange (NSE), as recent data reveals that foreign investors have predominantly been selling shares of the unlisted exchange. In June and July alone, FPIs sold NSE shares worth Rs 3,500 crore. This marks the sixth consecutive month where FPIs have been net sellers of NSE shares, with the last instance of net buying occurring in January.
The volume of shares being sold by FPIs has also increased significantly in recent months. In June and July, a total of 7.31 million and 9.83 million NSE shares were traded, respectively. Over 50 percent of these volumes were from FPI sales, with 4.76 million shares sold in June and 3.78 million shares in July, according to data from NSE’s share transfer records.
This is a notable rise in FPI selling compared to earlier months, where foreign investors sold in the range of 5-9 percent of the total shares traded. The shares sold by FPIs were mainly purchased by resident and non-resident investors.
Market experts suggest that this selloff could be due to uncertainties surrounding NSE’s long-awaited initial public offering (IPO) and increased competition from the Bombay Stock Exchange (BSE) in the equity derivatives market. The ongoing issues related to the co-location controversy have also contributed to the negative sentiment. Additionally, proposed changes to the equity derivatives segment could reduce trading volumes, impacting NSE’s revenue from transaction fees, its primary income source. Furthermore, NSE’s declining dominance in the currency derivatives market, following new regulations by the Reserve Bank of India, has further dampened investor sentiment.
In July, NSE saw its second-highest trading volume of the year, with 9.83 million shares traded. April had the highest volume, with 23.98 million shares traded. In terms of value, July’s turnover was Rs 4,377.66 crore, the highest since April, when Rs 7,000 crore worth of NSE shares changed hands. During the June quarter, FPIs reduced their stake in NSE to 24.08 percent, down from 24.81 percent in the March quarter and 25.15 percent in the December 2023 quarter.
NSE’s share price in July averaged Rs 4,282.15 per share, which is over 8 percent higher than June’s average of Rs 3,946.54, and 42.8 percent higher than July of the previous year. Despite the FPI selloff, NSE’s earnings were strong in the June quarter, with a 39 percent year-on-year increase in net profit to Rs 2,567 crore and a 51 percent rise in revenue from operations to Rs 4,510 crore. NSE also set aside Rs 587 crore to bolster the Core Settlement Guarantee Fund (SGF) to Rs 10,500 crore, as advised by the Securities and Exchange Board of India (Sebi).
Interestingly, the number of wealthy investors holding NSE shares has skyrocketed over the past five years. At the end of FY21, only about 650 individuals owned NSE shares. This number has now surged to over 4,300, including prominent investors like DMart founder Radhakishan Damani and other industry leaders.
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