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Business News/ Markets / Stock Markets/  FPIs turn buyers in November after 2 months of outflow, inflows in debt market highest in 2023; will the trend continue?
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FPIs turn buyers in November after 2 months of outflow, inflows in debt market highest in 2023; will the trend continue?

FPIs bought Indian equities worth ₹9,001 crore after selling shares worth ₹24,548 crore in October and ₹14,767 crore in September, data with the depositories showed.

FPIs bought Indian equities worth ₹9,001 crore after selling shares worth ₹24,548 crore in October and ₹14,767 crore in September, data with the depositories showed.Premium
FPIs bought Indian equities worth 9,001 crore after selling shares worth 24,548 crore in October and 14,767 crore in September, data with the depositories showed.

After 2 straight months of selling shares, Foreign Portfolio Investors (FPIs) turned buyers of Indian equities in November as US treasury bond yields declined after rising to a peak in October. FPIs bought Indian equities worth 9,001 crore after selling shares worth 24,548 crore in October and 14,767 crore in September, data with the depositories showed.

Following FPI turning buyers again in November, the Indian equity market ended the month with strong gains. This surge was fueled by an uplift in sentiment driven by a decline in US yields, and hopes of a peak in interest rates in the US, coupled with strong economic growth in India.

Sensex rose 4.9 percent while the Nifty 50 jumped 5.5 percent in November. This was Nifty's best month since July 2022. For the Sensex, it was the best month since October 2022.

"The better-than-expected decline in inflation in mid-October US has given the market confidence to assume that the Fed is done with a rate hike. Consequently, the US bond yields have declined sharply with the 10-year benchmark bond yield correcting from 5 percent in mid-October to 4.40 percent now. This has forced FPIs to slow down their selling," VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

Before the outflow started in September, FPIs were consistent buyers of Indian equities for six months from March to August and bought shares worth 1.74 lakh crore in this period.

FPIs infused 12,262 crore in August. Meanwhile, the net inflow was at 46,618 crore in July, 47,148 crore in June, and 43,838 crore in May. Before that, 11,631 crore was infused in Indian equities in April and 7,935 crore in March, data with the depositories showed.

However, in the first 2 months of the current calendar year, FPI investments were in the red. They sold equities worth 28,852 crore in January and 5,294 crore in February.

Overall, in 2023, FPIs have poured in 96,340 crore so far this calendar year.

Debt

FPIs invested 14,860 crore in the country's debt market during the period under review, taking the total investment to 50,361 crore in the debt market so far this year. This is a major increase from 6,382 crore infused in the debt segment in October and 938 crore in September. This is also the highest investment in the debt segment by the FPIs in 2023 till now and since October 2017.

Before November 2023, the month of October 2017 saw the highest FPI inflows into debt securities at 16,604 crore.

The calendar year 2023 is also the first time in 4 years that FPIs have become net buyers of Indian debt. Before this, FPIs were net buyers of Indian debt in 2019, when they invested 24,058 crore into bonds.

"With geopolitical conflicts rising, the risk premium attached to equities has gone up. US 10-year bonds are also witnessing selling pressure. This has pushed the yields higher. Hence, equities are believed to have become less remunerative while bonds have become more attractive," said Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities.

Will this trend continue?

Even though FPIs have turned buyers in November, most analysts remain cautious. They believe there are still multiple factors that may lead to FPI selling.

Manish Jain, Fund Manager, Coffee Can PMS, Ambit Asset Management

FII selling is dependent on multiple factors including the US economy and yields. So while India remains a very attractive long-term opportunity, near-term volatility in markets may persist due to choppy flows.

Siddarth Bhamre - EVP, Head of Research, Religare Broking

For FPIs, India is one of the stocks in their global portfolio within the equity universe. India is in a sweet spot but the world is not and hence there may be a global realignment in asset allocation as rising bond yields may be attracting more fund allocation based on the risk-reward ratio between debt and equity. So it is not necessary that the selling of Indian equities by FPIs means they are bearish on Indian equity. The current trend may very well continue till the time global risk-on trade doesn’t restart.

Viraj Gandhi, CEO, SAMCO MF

The key reason behind the selling in October was US FED rate hikes and the interest rate difference between India and the USA. This has a butterfly effect on the global markets. The rise in the dollar means lower net realisations for US investments and thus discourages them from investing at least in the short term. This trend may continue till the time there is no clarity as to when the rate hikes will pause and when will it start to come down. India as an investment destination has taken one of the top spots in the emerging markets and whenever clarity emerges on the interest rates, we should witness relatively larger sums flowing in the markets.

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Published: 01 Dec 2023, 12:19 PM IST
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