Foreign Portfolio Investors (FPIs) have divested Indian equities worth Rs 8,000 crore in the first week of October due to the strengthening dollar and the steady increase in US bond yields. This follows FPIs turning net sellers in September, with a withdrawal of Rs 14,767 crore. Prior to this outflow, FPIs had been consistently buying Indian equities for six consecutive months from March to August, injecting Rs 1.74 lakh crore during that period. Going forward, FPIs are unlikely to re-enter the market in the near term due to the strong dollar and elevated US bond yields, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Data from depositories reveals that Foreign Portfolio Investors (FPIs) sold shares amounting to Rs 8,000 crore in October (as of October 6). While India has remained attractive to FPIs among emerging economies this year, September marked a shift with selling, which has continued into October. The primary factor affecting capital flows in recent weeks has been the steadily rising US bond yields. The early days of October saw a sell-off in the US bond market, briefly pushing the 30-year bond yield to 5%. The benchmark 10-year yield consistently exceeded 4.7%, prompting FPIs to sell in emerging markets, Vijayakumar explained.
Himanshu Srivastava, Associate Director – Manager Research at Morningstar India, attributed the outflow to economic uncertainties in the US and Eurozone, coupled with growing concerns about global economic growth, causing foreign investors to become risk-averse. Factors such as higher crude oil prices, persistent inflation figures, and expectations of prolonged elevated interest rates may have led foreign investors to adopt a cautious stance. Additionally, concerns about India’s sub-par monsoon and its impact on inflation are likely on the radar of foreign investors, Srivastava added.
While FPIs have been selling in sectors like financials, power, IT, and oil and gas, they have been buyers in capital goods, automobiles, and auto components. The forthcoming second-quarter financial results in the financial sector, expected to be positive, may deter FPIs from further divestment in this segment, suggested Vijayakumar of Geojit Financial Services.
