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Foreign Portfolio Investors (FPIs) continued their selling spree by offloading Indian equities worth Rs 8,000 crore during the first week of October. This followed a net selling trend in September when FPIs withdrew a substantial Rs 14,767 crore from the market. Prior to this outflow, FPIs had been consistently buying Indian equities for six consecutive months from March to August, injecting a substantial Rs 1.74 lakh crore into the Indian market.
Looking ahead, it appears that FPIs may not return as buyers in the near term due to the prevailing strength of the US dollar and rising US bond yields, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Data from depositories reveals that Foreign Portfolio Investors sold shares worth Rs 8,000 crore in October up to the 6th. While India has remained attractive to FPIs among emerging economies this year, the trend shifted in September and has persisted into October. A significant factor influencing capital flows in recent weeks has been the steadily increasing US bond yields. Early October witnessed turmoil in the US bond market, briefly pushing the 30-year bond yield to 5 percent. The benchmark 10-year yield has consistently remained above 4.7 percent, prompting FPIs to divest from emerging markets, said Vijayakumar.
Himanshu Srivastava, Associate Director – Manager Research at Morningstar India, attributed this outflow to economic uncertainties in the US and Eurozone, coupled with concerns about global economic growth, which led foreign investors to adopt a risk-averse approach. Additionally, factors such as higher crude prices, persistent inflation figures, and the expectation of prolonged elevated interest rates may have contributed to foreign investors adopting a wait-and-see stance.
Furthermore, subpar monsoon conditions in India and their potential impact on inflation are concerns for the domestic economy, factors that foreign investors are likely monitoring closely.
While FPIs have been selling in financials, power, IT, and oil and gas sectors, they have shown interest in capital goods, autos, and auto components. The forthcoming quarterly results in the financial sector, expected to be positive, could deter FPIs from further divestment in this segment, according to Geojit’s Vijayakumar.
On the other hand, FPIs have invested Rs 2,081 crore in the Indian debt market during the same period. This takes their total investment in Indian equity to Rs 1.12 lakh crore and in the debt market to over Rs 31,200 crore for the year thus far.”
