FPIs turn net sellers after 6 months of investment; withdraw Rs 14,767 cr in Sep

FPIs turn net sellers after 6 months of investment; withdraw Rs 14,767 cr in Sep

In the last six months, Foreign Portfolio Investors (FPIs) had been consistently buying Indian equities, but their behavior took a turn in September. During this month, FPIs became net sellers, pulling out a substantial amount of Rs 14,767 crore from the Indian equity market. Several factors contributed to this change in behavior.

Firstly, the appreciation of the US dollar made investments in other currencies, including the Indian Rupee, less appealing to foreign investors. Secondly, the steady rise in US bond yields made fixed-income investments in the US more attractive when compared to equities in emerging markets like India. Additionally, the spike in crude oil prices posed concerns, as higher oil prices can negatively impact India’s trade balance and fiscal situation, which can affect investor sentiment.

Looking ahead, the outlook for FPI flows into India remains uncertain. It will depend on various factors, including the performance of the Indian economy, the monetary policy decisions made by the Reserve Bank of India (RBI) in October, and the outcomes of the September quarter earnings.

Mayank Mehra, the manager and principal partner at Craving Alpha, highlighted the importance of these factors in determining the future behavior of FPIs in the Indian equity market. According to data from depositories, FPIs sold shares worth Rs 14,767 crore in September, underscoring the recent shift in their investment strategy.

The recent outflow of funds by Foreign Portfolio Investors (FPIs) follows a trend that had been building over the past few months. In August, FPI investments in Indian equities had already hit a four-month low at Rs 12,262 crore. Prior to this outflow, FPIs had been consistently buying Indian equities for six consecutive months, from March to August, bringing in a substantial Rs 1.74 lakh crore during that period.

Several factors have contributed to this change in FPI behavior. V K Vijayakumar, the Chief Investment Strategist at Geojit Financial Services, pointed out that the latest selling can be attributed to the steady appreciation of the US dollar, which pushed the dollar index close to 107. Additionally, the continuous rise in US bond yields, taking the US 10-year bond yield to around 4.7 percent, and the spike in Brent crude oil prices to USD 97, all played a role in influencing FPI selling decisions.

Furthermore, rising US interest rates have also led to FPIs withdrawing funds from India, according to Mayank Mehra. Himanshu Srivastava, Associate Director of Manager Research at Morningstar India, suggested that the outflow in September can be attributed to economic uncertainties in the US and Eurozone regions, as well as growing concerns about global economic growth. These uncertainties have prompted foreign investors to adopt a more risk-averse stance.

In summary, the recent outflow of FPI funds from Indian equities can be attributed to a combination of factors including dollar appreciation, rising US bond yields, high crude oil prices, increasing US interest rates, and global economic uncertainties, all of which have influenced FPIs to become more cautious in their investment approach.

The cautious approach of foreign investors, particularly FPIs, in the Indian market can be attributed to several factors. Firstly, the higher crude oil prices, sticky inflation numbers, and the expectation that interest rates may remain elevated for an extended period have all contributed to their wait-and-watch stance. These factors can impact the overall economic environment and the attractiveness of investments.

Additionally, the sub-normal monsoon in India and its potential impact on inflation are concerns for the domestic economy. Foreign investors are likely to be aware of these factors and their potential repercussions, which further adds to their cautious approach.

Despite the selling by FPIs in the equity market, there has been a counterbalance from domestic institutional investors (DIIs) who have been actively buying. Furthermore, FPIs have shown interest in the country’s debt market, with an investment of Rs 938 crore during the period under review. This diversification into the debt market suggests that FPIs are seeking different avenues for investment in India.

As of the current year, FPIs have invested a total of Rs 1.2 lakh crore in the equity market and over Rs 29,000 crore in the debt market. Their investment decisions have also been sector-specific, with FPIs showing interest in capital goods and selected financial sectors. This sectoral preference indicates that FPIs are still identifying opportunities within the Indian market, even as they adopt a cautious stance in light of various economic and global factors.