Foreign investors pulled out a whopping Rs 17,000 crore from Indian equities in the first 10 days of the month due to the general elections and uncertainty over the outcome coupled with costly valuations and profit booking.
This is much more than the net withdrawal of 8,700 crore pounds in April as a whole amid concerns over a change in India’s tax treaty with Mauritius and a continued rise in US bond yields.
Earlier, FPI companies made net investments of ₹ 35,098 crore in March and ₹ 1,539 crore in February. Looking ahead, after the general elections, the sturdy financial performance of Indian corporates in Q4FY24 is expected to be rewarded.
While FPIs may adopt a cautious stance until the election results are clear, favorable results and established political stability may return in significant numbers, said Trivesh D., Chief Operating Officer, Tradejini.
Foreign Portfolio Investors (FPI) has seen a net equity outflow of ₹ 17,083 crore this month (till May 10), according to depository data.
There are many reasons for this aggressive selling by FPIs. With the general election ongoing and uncertainty over its outcome, investors are cautious about entering markets ahead of the election results, said Himanshu Srivastava, associate director of management research at Morningstar Investment Research India.
Moreover, given the relatively high valuations in Indian markets, many investors would see this as an opportunity to book a profit and wait until the political situation in the country becomes more clear, he added.
“Given the current political uncertainty in India and still attractive interest rates in the US, FPIs have shifted into risk-mitigation mode,” said Krishna Appala, diminutive project manager and senior research analyst at Capitalmind.
Another reason could be profit booking by FPIs in anticipation of market correction, especially around the results day, said Trivesh of Tradejini.
On the global front, the US Fed has not signaled interest rate cuts until inflation cools, increasing skepticism about the possibility of an earlier rate cut. This led to the appreciation of the US dollar, which led to a acute escalate in US treasury bond yields.
On the other hand, FPIs withdrew ₹1,602 crore from the debt market during the period under review.
Before this outflow, foreign investors had infused ₹ 13,602 crore in March, ₹ 22,419 crore in February and ₹ 19,836 crore in January. This inflow was due to the upcoming inclusion of Indian government bonds in the JP Morgan index.
Last September, JP Morgan Chase & Co announced it would add Indian government bonds to its benchmark emerging markets index from June 2024.
This landmark inclusion is expected to benefit India, attracting around $20-40 billion over the next 18-24 months.
So far, FPIs have become sellers and domestic institutional investors (DIIs) are consistent buyers on all trading days this month, with cumulative DII purchases at ₹ 19,410 crore, said VK Vijayakumar, chief investment strategist, Geojit Financial Services.
Overall, FPIs have withdrawn a net amount of ₹ 14,860 crore from equities in 2024 so far. However, they have invested ₹ 14,307 crore in the debt market.
