The euro zone turbulence has led foreign investors to snap their three-month long investment streak in the Indian equity market and emerge net sellers of shares over Rs 9,400 crore ($ 2 billion) in May.
Foreign institutional investors (FIIs) were gross buyer of stocks worth Rs 52,192 crore in May, while they sold shares worth Rs 61,628 crore, becoming net sellers of Rs 9,436 crore, data available with market regulator SEBI showed.
This is the first time after January that FIIs turned net sellers of shares in 2010. During the February-April period, overseas buyers had invested a whopping Rs 30,500 crore in Indian stock markets.
“In May, the market was sharply down due to risk aversion by investors globally owing to uncertainty over the euro zone, which led to heavy selling by FIIs in the Indian market,” brokerage firm Sharekhan said in a note.
Stock market benchmark Sensex sank 614 points, or 3.62 per cent, while the Nifty lost 192 points, or 3.63 per cent, in May.
Equities across the globe faltered in the month largely on fears of deepening euro zone crisis, coupled with political tension between North Korea and South Korea.
FIIs play a significant role in Indian equity markets and their movement (inflow or outflow) causes fluctuation in indices.
With a net outflow of Rs 9,400 crore last month, the total net investment by overseas investors in 2010 came down to Rs 20,569 crore, almost at the same as in April, 2010. After a record investment of Rs 83,400 crore in 2009, FIIs started selling shares in early 2010. Till January, they were net seller of shares worth Rs 500 crore. However, from February the scenario started changing and they made a net purchase of shares worth Rs 1,216 crore.
In April, FIIs were net purchaser of shares worth Rs 9,361 crore and March had attracted a whopping Rs 19,928 crore.
According to Sharekhan, “In the coming days, it remains to be seen how PIGS (Portugal, Ireland, Greece and Spain) handle the crises and this may affect FII flow.”