Foreign portfolio investors (FPIs) have extended their selling streak in Indian markets ever since reducing their buying momentum with the onset of the new fiscal 2024-25 (FY25). Volatility due to Lok Sabha elections 2024 and results, outperformance in Chinese markets, hawkish stance from central banks, and other global cues have weighed on the sentiments of foreign investors.
FPIs offloaded ₹14,794 crore worth of Indian equities and the total outflow stands at ₹10,355 crore as of June 7, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. The total debt inflows stand at ₹4,008 crore in the first week of June.
"In May FPIs sold equity for ₹25,586 crore. In the cash market the selling has been excessive and sustained. For CY2024, so far, FPIs have sold equity for ₹23,363 crore. A significant trend in the FPI activity is the huge selling through exchanges and buying through the primary market route,'' said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
Also Read: Why did FPIs dump ₹25,586 crore worth of Indian shares in May—Explained with 4 key reasons
FPIs regard Indian valuations to be very high and the capital is getting shifted to cheaper markets. ‘’The FPI pessimism regarding Chinese stocks appears to be over and there is a trend of investing in Chinese stocks listed in the Hong Kong Exchange since the valuations of Chinese stocks have turned very attractive,'' said Dr. V K Vijayakumar.
The main trigger for the FPI selling has been the outperformance of the Chinese stocks. The Hang Seng index boomed eight per cent in the first half of May triggering selling in India and buying in Chinese stocks in the last two months.
Foreign institutional investors (FIIs) remained net sellers last week, offloading approximately ₹13,718 crore in the cash segment. Conversely, the domestic institutional investors (DIIs) continued their buying spree with net purchases amounting to nearly ₹5,579 crore in the cash segment.
Market experts give a dividend verdict on when FPI inflows will resume in Indian markets. The long-term outlook for FPI flows into Indian debt is positive due to India's inclusion in global bond indices. However, near-term flows are being impacted by global macroeconomic uncertainty and volatility. The trend will reverse once the interest rate outlook becomes clearer, according to analysts.
‘’After the huge volatility witnessed in the market in response to the election results ( both exit polls and actual results) the market is slowly stabilising. An important point to consider is the high valuations of Indian stocks, particularly in the broader market. High valuations will attract further selling by FPIs, going forward,'' said Geojit's Dr. V K Vijayakumar.
Analysts highlighted that the FPI strategy is to sell India which is expensive and buy China which is very cheap mainly through Hong Kong. The price to earnings or PE ratio in India is more than double the PE ratio in Hong Kong. However, some are bullish on their verdict and expect inflows to resume soon.
“Post the election results and settling down on the political front, India is back on the radar showcasing its strong fundamentals and long-term growth story. FPIs did react to the election results, resulting in substantial selling pressure with the decision to exit,'' said Manoj Purohit, Partner and leader - FS Tax, Tax and Regulatory Services, BDO India.
However, post the final results, the investor fraternity is now back in action to look at India as a preferred jurisdiction as compared to other markets. The primary factors that can be attributed to instilling such a belief are positive economic numbers, government’s policy reforms to make India a conducive place to invest, and the recent interest rate cut by the European Central Bank making room for substantial investment opportunities, according to experts.
‘’Given recent announcements made by SEBI permitting NRIs, OCIs, and even RIs to invest up to 100 per cent in FPIs based out of IFSC is a clear indication of the intention to create a compatible platform for foreign investors to give better returns on investments and with ease of doing business and compliances,'' said Purohit.
“FPIs in India will continue to grow under stable government regime, conducive environment backed by inflation control, fiscal prudence and far-sighted vision for India to a make a global hub for capital markets,'' he added.
In May 2024, FPIs offloaded ₹25,586 crore worth of Indian equities, and the debt inflows stood at ₹8,761 crore. Uncertainty over the outcome of the Lok Sabha elections 2024, high US bond yields, high Indian market valuations, and the outperformance of Chinese stocks weighed on sentiments.
FPIs offloaded ₹8,671 crore in Indian equities in April and ₹10,949 crore in debt markets over high US bond yields. However, they pumped ₹35,098 crore in Indian equities during March 2024 - the highest inflows recorded in the first three months of 2024. FPI outflow initially declined in February 2024 until they were net buyers by the end of the month, despite high US bond yields.
The inflow into Indian equities stood at ₹1,539 crore in February 2024 and the debt market investment rose to ₹22,419 crore during the month on top of the ₹19,836 crore bought in January. The inclusion of government bonds to JPMorgan and Bloomberg debt indices had especially triggered foreign fund inflows into debt markets. FPIs turned massive sellers in January 2024 snapping their buying streak as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.
However, inflow intensified in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.
For the entire calendar year 2023, FPIs bought ₹1.71 lakh crore in Indian equities and the total inflow stands at ₹2.37 lakh crore taking into account debt, hybrid, debt-VRR, and equities, according to NSDL data. FPIs' net investment in Indian debt market stands at ₹68,663 crore during 2023.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
Catch all the Business News , Market News , Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.