Foreign Institutional Investors (FIIs) withdrew a staggering Rs 20,637 crore from Indian equities in a single day on Friday, marking one of the sharpest exits in recent months. The selloff coincided with a 1.5% drop in benchmark indices, largely attributed to passive fund flows linked to an MSCI index reshuffle.
The trading session saw FPIs engaging in Rs 198,465 crore of activity, accounting for nearly 69% of the NSE's total turnover of Rs 287,452 crore. Despite being net sellers, FPIs traded almost 9.6 times the amount they sold. In contrast, domestic institutional investors (DIIs) were net buyers of Rs 16,260 crore, with total trades amounting to Rs 53,772 crore.
Market analysts are debating whether the high trading volumes were solely due to MSCI-related adjustments or if high-frequency trading (HFT) strategies played a role. Nilesh Shah of Kotak Mahindra Asset Management questioned the extent to which HFT trades contributed to the reported net FPI outflow.
“Nilesh Shah questioned whether the surge in activity was surprising given that Indian equities are currently not a key focus area for FPIs.”
Nilesh Shah, MD of Kotak Mahindra Asset Management
Gurmeet Chadha, a market expert, expressed concerns over the trading volumes, suggesting that 'speed and money muscle' might be distorting market dynamics. He pointed to the addition of 31,000 short contracts as suspicious, especially with Brent crude prices around $90 a barrel.
Abhilash Pagaria from NuvamaWealth noted that the MSCI rebalancing led to outflows of Rs 8,000-8,500 crore, higher than previous reviews due to free-float adjustments in stocks like Bajaj Finance and TCS. The MSCI review added and removed several stocks, maintaining India's overall weight in the index at around 12.3%.
“We need to act and trap this cartel.”
Gurmeet Chadha, Market Expert
Background
The MSCI index review is a periodic event that often leads to significant market movements as passive funds adjust their portfolios to align with the new index composition. Such adjustments can lead to temporary volatility and trading volume spikes.
Looking ahead, market participants will closely monitor the impact of the MSCI index changes on trading patterns and whether the high volumes observed are indicative of a longer-term trend or a one-off adjustment. The role of HFT strategies in amplifying market movements will also be under scrutiny.
