Foreign portfolio investors (FPIs) have withdrawn more than Rs 12,000 crore from Indian equities this month due to a sustained increase in US bond yields and the uncertain environment resulting from the Israel-Hamas conflict, according to data from depositories. However, FPI activity in Indian debt tells a different story, as they have invested over Rs 5,700 crore in the debt market during the same period.
Himanshu Srivastava, Associate Director – Manager Research at Morningstar Investment Adviser India, stated that the trajectory of FPIs’ investments in India will be influenced not only by global inflation and interest rate dynamics, but also by developments and the intensity of the Israel-Hamas conflict. Geopolitical tensions tend to increase risk, which usually hampers foreign capital inflows into emerging markets like India, Srivastava added.
According to depository data, FPIs have sold shares worth Rs 12,146 crore so far this month. This comes after FPIs turned net sellers in September and pulled out Rs 14,767 crore. Prior to this outflow, FPIs had been continuously buying Indian equities from March to August, with a total investment of Rs 1.74 lakh crore.
Mayank Mehraa, smallcase manager and principal partner at Craving Alpha, mentioned that the recent outflow can be attributed to the global uncertainties prevailing in the current market. Geopolitical issues, particularly the conflicts in Israel and Ukraine, have created instability in international markets, prompting FPIs to adopt a cautious approach in the Indian equity market.
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, stated that the sharp spike in US bond yields, which reached a 17-year high of 5% on October 19th, was the primary reason for the sustained selling. In the current scenario, experts believe that there could be an increased focus on safe-haven assets, such as gold and the US dollar.
Explaining the reasons for the Rs 5,700 crore inflow in the debt market, Vijayakumar mentioned that FPIs are diversifying their investments amidst global uncertainty and weakness in the global economy. Indian bonds are providing good yields, and the stability of the rupee in light of India’s stable macros has also contributed to the inflow. Additionally, the inclusion of India in the JP Morgan Global Bond Index has played a role in attracting FPIs to the country’s debt market.
Mayank Mehraa said, “This might be a strategy to sit tight on the sidelines in the equity market and await more stable conditions or potential corrections before diving back in. In essence, this dual approach of FPIs highlights the intricate dance they perform in response to global events.” He emphasized that FPIs’ readiness to shift focus from one asset class to another underscores the dynamic nature of investment strategies in the face of changing circumstances.
So far this year, FPIs have invested around Rs 1.08 lakh crore in equity and close to Rs 35,000 crore in the debt market. In terms of sectors, FPIs have been selling shares across various sectors such as financials, power, FMCG, and IT, while their purchasing activity has been subdued in automobiles and capital goods. However, FPIs have shown interest in the telecom sector.
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