Foreign portfolio investors (FPIs) have withdrawn over Rs 12,000 crore from Indian equities so far this month, mainly due to a sustained rise in US bond yields and the uncertain environment due to the Israel-Hamas conflict.
However, the story takes an intriguing twist when observing FPI activity in Indian debt as they injected over Rs 5,700 crore into the debt market during the period under review, data from the custodians shows.
Going forward, the trajectory of FPIs’ investments in India will be influenced not only by global inflation and interest rate dynamics but also by the developments and intensity of the conflict between Israel and Hamas, Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Adviser India , said.
Geopolitical tensions tend to increase risk, which typically hurts foreign capital inflows into emerging markets like India, he added.
According to depository data, foreign portfolio investors (FPIs) have sold shares worth Rs 12,146 crore this month (till October 20).
This came after FPIs turned net sellers in September, raising Rs 14,767 crore.
Before the outflow, FPIs were buying Indian equities continuously over the last six months – from March to August – and bought shares worth Rs 1.74 lakh crore.
The latest outflow appears to be a response to current global uncertainties. Geopolitical issues, especially the conflicts in Israel and Ukraine, have cast shadows of instability on the international markets, prompting FPIs to take a cautious stance in the Indian equity arena, says Mayank Mehraa, small case manager and principal partner at Craving Alpha.
“The main reason for the continued selling was the sharp spike in US bond yields, which took the 10-year yield to a 17-year high of 5 percent on October 19,” said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services . said.
In the current scenario, experts believe that there could be a greater focus on safe-haven assets such as gold and the US dollar.
Explaining the reasons for the inflow of Rs 5,700 crore into the debt market, Vijayakumar said this can be attributed to a host of factors such as FPIs diversifying their investments amid global uncertainty and weakness in the global economy, Indian bonds giving good returns and the rupee is expected to be stable given India’s stable macros.
Another factor is India’s inclusion in the JP Morgan Global Bond Index, he added.
“This could be a strategy to stay on the sidelines of the stock market and wait for more stable conditions or possible corrections before diving back in. In essence, this dual approach to FPIs highlights the complicated dance they perform in response to global events.” said Mehraa.
Their willingness to shift focus from one asset class to another underlines the dynamic nature of investment strategies in the face of changing conditions, he added.
With this, FPIs’ total investment in equity has reached Rs 1.08 lakh crore so far this year and nearly Rs 35,000 crore in the debt market.
In terms of sectors, FPIs have sold across the board in sectors such as financials, energy, FMCG and IT, while buying in automotive and capital goods has been subdued. However, they were telecom buyers.
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