FPIs dump ₹6,304 crore in Indian equities over US macro data, extend selloff in debt markets; What lies ahead?

Foreign portfolio investors (FPIs) have tuned net sellers in Indian markets ever since reducing their momentum of buying this month with the onset of the new fiscal 2024-25 (FY25). This comes after reporting solid inflows in the previous fiscal. However, experts are doubtful if the inflows will continue as US bond yields are likely to stay elevated over a sharp uptick in US core inflation.

FPIs have offloaded ₹6,304 crore worth of Indian equities and the total outflow stands at ₹13,144 crore as of April 26, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. The total debt outflows stand at ₹10,640 crore so far this month.

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"In April through 26th FPI selling in equity stands at ₹6,304 crore. In the cash market during this period the equity selling stood at ₹20,525 crore. In the debt market also there is a trend of renewed selling,'' said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Why are FPIs selling in Indian markets?

The trigger for this renewed FPI selling, in both equity and debt, is the sustained rise in US bond yields. The 10-year bond yield now stands at around 4.7 per cent which is hugely attractive for foreign investors.

‘’The latest core CPI inflation in the US jumped to 3.7 per cent against the expectation of 3.4 per cent. This means the prospects of early rate cuts by the Fed are receding. This will keep yields high triggering more FPI outflows in both equity and debt,'' said Dr. V K Vijayakumar.

The positive factor is that all FPI selling in the equity markets is getting absorbed by DIIs, HNIs and retail investors. This is the only factor that may reign in FPI selling, according to the analyst.

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FPI activity in Indian markets

FPIs 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.

Overall, only four months in 2023--January, February, September, and October- saw net FPI outflows from Indian equities. May, June, and July each recorded FPI inflows above ₹43,800 crore.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.