Budget 2024: FPIs likely to stay cautiously positive on stock markets, here’s why

FPIs that have reversed their selling strategy in India with the decline in U.S. bond yields have also been forced to do so by the resilience of the Indian market. The strengthening of the rally in the Indian markets post state election results may further influence their strategy as we move forward and keep them away from becoming sellers.

The trend of regular selling by the Foreign Portfolio Investors (FPI) in the markets reversed recently. After remaining net sellers worth ₹13810 Crore in September and ₹17875 crore in October, as per NSDL data, the foreign portfolio Investors were net buyers in the Indian markets investing ₹8786 crore in November. It is the rising dollar index and higher US Bond yields since September that had meant that investments into emerging markets like India became less attractive for FPIs, the declining Bond yields and softening of dollar index now have been helping FPI flows into India.

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FPIs have reversed their selling strategy in India as decline in U.S. bond yields and the resilience of the Indian market have forced the FPIs to halt their selling, during the last six days and FPIs were consistent buyers in India, said analysts The decline in the 10-years US bond yields to close to 4.25% after having hit 5% is positive for flows into India now. The election outcome and rally in the India markets may further keep FPI positive and FOMO (Fear of missing out) may lead them away from selling and remaining net buyers, feel analysts

The experts as Deepak Jasani Head of Research at HDFC Securities said that the FPI’s are likely to recalibrate their strategy post-Election results in a few days. While the FOMO will be an influencing factor for FPI however they will be watchful on the valuations of the Indian markets feels Jasani. The global interest rates movement and outcome of the FOMC (Federal open market committee) meeting in coming day will remain key. The Q3 results in January there will be other factors that FPI will watch before vote on account (Budget 2024) is presented.

The valuations of Indian markets have got stretched and this means that the FPI may be selective in buying feel analysts. 

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Going forward, FPI response will be crucially determined by the market trend, which, in turn, is being influenced by the state election results. However, since overall market valuations have reached high levels, FPIs may turn sellers at higher market levels. They might buy into financials where the valuations are fair, said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

“We believe that the near-term markets are likely to see strong interest, led by a rebound in industrial growth and a benign interest rate trajectory. Yesterday’s events have lowered risk for investors in the short term, and they can expect a good closing for the calendar year. In the medium term, critical market risks remain higher than historical valuation levels and potential global slowdowns, especially in the US, China, and Europe” said Pranav Haridasan, MD & CEO, Axis Securities

The decline in Bond yields is to be watched carefully. Though the decline is being  attributed to no more rate hike expectations, however another reason for decline as per analysts could be that demand is weak and there is some recessionary impact. Any recessionary impact will not be positive for the markets said analysts.