Are foreign investors bullish or bearish on Indian markets? Or are they same-ish?

Foreign institutional investors (FIIs) are a critical part of the Indian stock market. Whether they are bullish or bearish on Indian stocks at any point of time is a story that the business media likes to follow, simply because their bullishness or bearishness is an important factor in deciding which way the market will go in the days to come. Or so it seems.

So, how has the foreign investor story gone this year? News reports suggest that FIIs turned bullish on Indian stocks again in June. And why is that? During the month, the foreign investors net bought stocks worth ₹26,565 crore or $3.2 billion. Foreign investors buy and sell stocks. If the difference between buying and selling is positive they are said to have net bought stocks. If it’s negative they are said to have net sold stocks.

Now, $3.2 billion seems to be a lot of money. Thus, we can conclude that in June, foreign investors turned bullish on Indian stocks. QED.

But why is the term ‘turned bullish’ being used here? Weren’t foreign investors always bullish on Indian stocks? No. They weren’t.

You see, in May, the FIIs had net sold stocks worth ₹25,586 crore or $3.1 billion. And given that they net sold stocks worth over three billion dollars, they were supposedly bearish on Indian stocks in May. And in June they turned bullish. That’s how it is.

And what about April? Well, in April, they had net sold Indian stocks worth ₹8,671 crore or a little over $1 billion. And March? They had net bought stocks worth ₹35,098 crore or $4.2 billion. Before that, they had net bought stocks worth ₹1,539 crore or $186 million in February and net sold stocks worth ₹25,744 crore or $3.1 billion in January. And so the story goes.

The point here is that foreign investors, during this year, were bearish in January, slightly bullish in February, very bullish in March, slightly bearish in April, bearish in May and again bullish in June. At least that’s how things look when we look at the foreign investors’ monthly buying and selling data and news reports around it.

Typically, this is how FIIs investment in Indian stocks is reported in the business media. But there is more to it than just this.

The number reported in such stories in the media is just the absolute net buying or the net selling number of the foreign investors during any month, not their overall investment in Indian stocks at any point, which is a much more important number, and that rarely gets reported.

At the end of December 2023, the total value of the investment of foreign investors in Indian stocks stood at $738 billion. In January, they net sold stocks worth $3.1 billion, which is around 0.4% of the value of their investment as of December.

At the end of February 2024, the total value of the investment of foreign investors in Indian stocks stood at $763 billion. In March, they bought stocks worth $4.2 billion or around 0.6% of the value of their total investment as of the end of February.

Similarly, in May, the FIIs net sold stocks worth around 0.4% of their total investment as of April. And in June, they net bought stocks worth 0.4% of their total investment as of May.

In fact, as of mid-June, the total value of the investment of FIIs in Indian stocks stood at around $838 billion.

On the whole, foreign investors don’t analyse whether they have to be bullish or bearish on India, month on month. The world does not work in such a short-term timeframe. Of course, incrementally, there will always be some buying and some selling, and the right way to look at things is as a percentage of the total investment at any given point of time.

What also needs to be remembered is that the influence of FIIs in driving the Indian stock market has come down over the years. Retail investors are investing in Indian stocks both directly and indirectly. Money is coming into stocks indirectly through the systematic investment plans of mutual funds, direct investment into equity mutual funds, and investments into unit-linked investment plans of insurance companies, which have a mandate to invest in stocks. To add to this, salaried employees regularly invest in the Employees’ Provident Fund (EPF) and the National Pension Scheme, a portion of which is invested into stocks. In fact, even non salaried individuals can invest in the National Pension Scheme. The quantum of this indirect investment has gone up significantly in the last few years and holds up the Indian stock market even when FIIs are net sellers at a point of time.

So, where does that leave business media and their obsession with the bullishness or bearishness of foreign investors? The answer to that is simple. There is space to be filled and it is being filled. Saying that FIIs continue to look at India in the same way as they were—or what I have called same-ish—doesn’t really make for news. But calling it bullish or bearish does. Nonetheless, like most news that gets published on the stock market, this is noise as well. Truth be told, yours truly has also been a part of creating this noise—both on account of the lack of knowledge and the need to fill up space.