Foreign Portfolio Investors (FPIs) transitioned from being net buyers to sellers in Indian equities in September, withdrawing a total of over Rs 14,767 crore. This shift is primarily attributed to several factors, including the appreciation of the US dollar, a steady increase in US bond yields, and a surge in crude oil prices. The future direction of FPI flows in India remains uncertain, contingent on factors such as the performance of the Indian economy, the Reserve Bank of India’s (RBI) monetary policy in October, and the outcomes of corporate earnings for the September quarter, as outlined by Mayank Mehra, the manager and principal partner at Craving Alpha, who works with smallcase.
Data from depositories reveals that FPIs offloaded shares worth Rs 14,767 crore in September. This comes on the heels of a four-month low in FPI equity investments at Rs 12,262 crore in August. Prior to this reversal, FPIs had been consistently buying Indian equities over the preceding six months, amassing a total of Rs 1.74 lakh crore from March to August.
Several factors have contributed to this recent trend of FPI selling. These include the strengthening of the US dollar, which pushed the dollar index close to 107, as well as a continuous uptick in US bond yields, resulting in the US 10-year bond yield reaching approximately 4.7%. Additionally, the spike in Brent crude oil prices to USD 97 has weighed on FPI selling. Rising US interest rates have also prompted FPIs to withdraw investments from India.
According to Himanshu Srivastava, Associate Director – Manager Research at Morningstar India, the outflow in September can be attributed to economic uncertainties in the US and Eurozone regions, coupled with growing concerns about global economic growth. These factors have made foreign investors more risk-averse. Furthermore, higher crude oil prices, persistent inflation figures, and the expectation of prolonged elevated interest rates have likely influenced foreign investors to adopt a cautious approach.
Domestic Institutional Investors (DIIs) have countered the FPI selling trend with their own purchases. Additionally, FPIs invested Rs 938 crore in India’s debt market during the same period. So far this year, FPIs have invested a total of Rs 1.2 lakh crore in equities and over Rs 29,000 crore in the debt market. In terms of sectors, FPIs have shown interest in capital goods and selected financials.
