The sell-off of Foreign Portfolio Investors (FPIs) continues as they withdrew over Rs 3,400 crore from Indian equity markets in the first three trading sessions of November due to rising interest rates and geopolitical tensions in the Middle East.
This came after such investors withdrew Rs 24,548 crore in October and Rs 14,767 crore in September, depository data showed.
Before the outflow, FPIs continuously bought Indian equities in the last six months from March to August and raised Rs 1.74 trillion during that period.
Going forward, this selling trend is unlikely to continue as the main trigger for FPI selling, rising bond yields, has reversed after the US Federal Reserve signaled a dovish stance at its November meeting.
“The main trigger for this turnaround in bond yields is Fed chief Jerome Powell’s subtle dovish comment that ‘despite elevated inflation, inflation expectations remain well anchored.’ The market has interpreted this statement as the end of the rate hike cycle,” VK Vijayakumar, chief investment strategist at Geojit Financial Services, says.
According to depository institutions’ data, FPIs sold shares worth Rs 3,412 crore between November 1 and 3.
FPIs have been on a selloff since early September.
“This can largely be attributed to growing geopolitical tensions due to the Israel-Hamas conflict, besides a notable rise in US Treasury yields,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Adviser India.
Bharat Dhawan, Managing Partner of Mazars in India, a professional consultancy, said: “The global landscape has become significantly more uncertain, with recession concerns, rising inflation and the outbreak of geopolitical conflict tripling in the first week of October. . “
In the current scenario, experts believe that there could be a greater focus on safe-haven assets such as gold and US dollars.
On the other hand, the debt market attracted Rs 1,984 crore in the period under review after receiving Rs 6,381 crore in October, data showed.
This approach could be a tactical move by foreign investors to allocate money to Indian debt in the short term, with the intention of shifting capital to equity markets once conditions become more favorable, Morningstar’s Srivastava said.
The inclusion of Indian G-Sec in the JP Morgan Government Bond Index Emerging Markets (GBI-EM) has boosted the participation of foreign funds in the Indian bond markets, says Sahil Dhingra, small case manager and founder of Alvez Capital.
With this, FPIs’ total investment in equity has reached Rs 92,560 crore and Rs 37,485 crore in debt market so far this year.
In terms of sectors, frontline banks, automotive, capital goods and midcaps in IT and real estate sectors are poised to do well.
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