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FPIs have turned cautious as they pulled out ₹325 crore from Indian equities in the first week of this month owing to relatively high valuations and the upcoming general elections. The net outflow came after a staggering investment of ₹35,000 crore in March and ₹1,539 crore in February, data with the depositories showed.
Going ahead, Geojit Financial Services Chief Investment Strategist V.K. Vijayakumar said the US 10-year yield has spiked to 4.4%, which will impact FPI (foreign portfolio investment) investment flows into India in the near term. However, FPI selling will be limited despite the high US bond yields since the Indian stock market is bullish and has been setting new records consistently, he added.
smallcase Manager and Senior Research Analyst at Capitalmind Krishna Appala believes that FPIs might return post-elections or upon early signs of a US Fed rate reduction.
According to the data with the depositories, FPIs withdrew ₹325 crore from Indian equities this month (till April 5).
"Relatively high valuations and the looming general elections have made FPIs cautious, leading them to hold back from aggressive investments in the equity markets at this juncture," Mr. Appala said. On the other hand, FPIs have made a net investment of ₹1,215 crore in the debt market during the period under review.
Indian government securities (G-Sec) 10-year yield standing at 7.1% and the US 10-year at 4.3% present a compelling case for FPIs. The risk-reward ratio is prompting them to shift their focus from equities to the higher yields offered by bond instruments in the US and India.
FPIs pump money into Indian bonds markets
Moreover, FPIs have been pumping money into the debt markets for the past few months, driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index. They invested ₹22,419 crore in February, ₹19,836 crore and ₹18,302 crore in January.
JP Morgan Chase & Co announced that it would add Indian government bonds to its benchmark emerging market index from June 2024. This landmark inclusion is anticipated to benefit India by attracting around $20-40 billion in the subsequent 18 to 24 months.
This inflow is expected to make Indian bonds more accessible to foreign investors and potentially strengthen the rupee, bolstering the economy. In terms of sectors, FPIs have turned into big sellers in the FMCG segment and buyers in telecom and realty. Overall, the total inflow for this year so far stood at more than ₹10,500 crore in equities and over ₹57,000 crore in the debt market.
