Foreign investors pulled out a massive ₹17,000 crore from Indian equities in the first 10 days of the month owing to the general election and the uncertainty surrounding its outcome coupled with expensive valuations and profit booking.
This was way higher than a net withdrawal of ₹8,700 crore, in the entire month of April on concerns over a tweak in India's tax treaty with Mauritius and a sustained rise in US bond yields.
Before that, FPIs made a net investment of ₹35,098 crore in March and ₹1,539 crore in February. Looking ahead, post-general elections, corporate India's strong financial performance in Q4 FY24, is anticipated to be rewarded.
While FPIs may adopt a cautious stance until the election results are clear, favourable outcomes and established political stability could see their return in significant numbers, Trivesh D, COO at Tradejini, said.
According to the data with the depositories, Foreign Portfolio Investors (FPIs) experienced a net outflow of ₹17,083 crore in equities this month (till May 10).
There are multiple reasons behind this aggressive selling by FPIs. With the ongoing general election and the uncertainty surrounding its outcome, investors are wary to enter the markets before the election results, Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Research India, said.
Also, with Indian markets trading at relatively high valuations, many investors would have found this as an opportunity to book profit and wait until more clarity emerges on the country's political landscape, he added.
"Given the current political uncertainty in India and with US interest rates still appealing, FPIs have shifted to a risk-off mode," Krishna Appala, smallcase manager & Senior Research Analyst at Capitalmind, said.
Another reason could be profit booking by FPIs in anticipation of a market correction, particularly around results day, Tradejini's Trivesh said.
On the global front, the US Fed has indicated no rate cuts until inflation cools, thus raising scepticism over the possibility of an early rate cut. It led to the appreciation in the US dollar leading to a surge in US Treasury yields. On the other hand, FPIs withdrew ₹1,602 crore from the debt market during the period under review.
Before this outflow, foreign investors injected ₹13,602 crore in March, ₹22,419 crore in February, ₹19,836 crore in January. This inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index. JP Morgan Chase & Co in September last year announced it will add Indian government bonds to its benchmark emerging market index from June, 2024.
This landmark inclusion is anticipated to benefit India by attracting around $20-40 billion in the subsequent 18 to 24 months.
FPIs have turned sustained sellers and domestic institutional investors (DIIs) have turned sustained buyers in all trading days of this month, so far, with cumulative DII buying of ₹19,410 crore, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.
Overall, FPIs withdrew a net amount of ₹14,860 crore in equities in 2024 so far. They, however, invested ₹14,307 crore in debt market.