May marks another month with a stark contrast in the interest shown by foreign and domestic investors in Indian equities. So far this month, foreign portfolio investors (FPIs) have sold a net ₹35,527 crore worth of Indian shares, extending their selling to a second month. Meanwhile, domestic investors pumped in ₹41,720 crore.
Strong domestic buying support has meant markets haven’t tumbled the way they once would at the faintest indication of foreign investors making their way out. But our stock indices haven’t risen much lately either, even as volatility has spiked. With elections underway, FPI selling is being linked to the risk of a power shift. Is that prospect being over-estimated? Unlike domestic investors, foreign investors have a bigger play-field, with other markets competing for their money.
Also read: Explained: Why is Indian market breaking record highs in May despite FPI outflows?
India’s capital inflows often depend on interest rate conditions and risk dispositions in the West, not to mention our rupee policy. By global comparison, though, Indian shares look overpriced for their earnings. Whichever way the Lok Sabha polls go, Indian equities may need an earnings catch-up and the boost of fresh economic reforms for bigger inflows from abroad.