Foreign portfolio investors (FPIs) have significantly reduced their selling streak in Indian equities this month after stability returned to Indian markets with a fall in the 'VIX' volatility index.
The long-term outlook for FPI flows into Indian debt is positive due to India's inclusion in global bond indices.
FPI activity in Indian marketsIn May 2024, FPIs offloaded ₹25,586 crore worth of Indian equities, and the debt inflows stood at ₹8,761 crore.
FPIs offloaded ₹8,671 crore in Indian equities in April and ₹10,949 crore in debt markets over high US bond yields.
However, they pumped ₹35,098 crore in Indian equities during March 2024 - the highest inflows recorded in the first three months of 2024.
Foreign portfolio investors (FPIs) have significantly reduced their selling streak in Indian equities this month after stability returned to Indian markets with a fall in the 'VIX' volatility index. FPIs reduced their buying momentum with the onset of the new fiscal 2024-25 (FY25). Volatility due to Lok Sabha elections 2024 and results, outperformance in Chinese markets, hawkish stance from central banks, and other global cues have weighed on the sentiments of foreign investors.
FPIs offloaded ₹3,064 crore worth of Indian equities and the net investment turned positive to ₹4,752 crore as of June 14, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. The total debt inflows stand at ₹5,703 crore till the second week of June.
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‘’After the roller coaster ride in the market in the first week of June, stability has returned to the market as indicated by the sharp fall in India VIX from 27 on June 4 to 12.82 on June 14. This fall in India VIX indicates the return of stability and a likely consolidation phase in the market,'' said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
When will FPI inflows resume in India?
The first week of June witnessed massive volatility in FPI flows in response to exit polls and the actual election results. FPIs bought equity for ₹6,521 crore on June 3 in response to exit polls. But when the actual results fell far short of what the exit polls indicated, the market crashed on June 4th and FPIs, too, panicked and sold stocks for ₹12,259 crore, according to Dr. V K Vijayakumar.
Analysts highlighted that the FPI strategy is to sell India which is expensive and buy China which is very cheap mainly through Hong Kong. The price to earnings or PE ratio in India is more than double the PE ratio in Hong Kong. However, some are bullish on their verdict and expect inflows to resume soon.
Also Read: Why did FPIs dump ₹25,586 crore worth of Indian shares in May—Explained with 4 key reasons
‘’The resilience of the market and eagerness of retail investors to buy every dip in the market will force FPIs to reduce their selling which was sustained in May. However, if the market continues to rally from here, FPIs may again turn sellers in India and buyers in other markets like Hong Kong which are very cheap compared to India,'' added Dr. V K Vijayakumar.
The long-term outlook for FPI flows into Indian debt is positive due to India's inclusion in global bond indices. However, near-term flows are being impacted by global macroeconomic uncertainty and volatility. The trend will reverse once the interest rate outlook becomes clearer, according to analysts.
FPI activity in Indian markets
In May 2024, FPIs offloaded ₹25,586 crore worth of Indian equities, and the debt inflows stood at ₹8,761 crore. Uncertainty over the outcome of the Lok Sabha elections 2024, high US bond yields, high Indian market valuations, and the outperformance of Chinese stocks weighed on sentiments.
FPIs offloaded ₹8,671 crore in Indian equities in April and ₹10,949 crore in debt markets over high US bond yields. However, they pumped ₹35,098 crore in Indian equities during March 2024 - the highest inflows recorded in the first three months of 2024. FPI outflow initially declined in February 2024 until they were net buyers by the end of the month, despite high US bond yields.
The inflow into Indian equities stood at ₹1,539 crore in February 2024 and the debt market investment rose to ₹22,419 crore during the month on top of the ₹19,836 crore bought in January. The inclusion of government bonds to JPMorgan and Bloomberg debt indices had especially triggered foreign fund inflows into debt markets. FPIs turned massive sellers in January 2024 snapping their buying streak as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.
However, inflow intensified in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.
For the entire calendar year 2023, FPIs bought ₹1.71 lakh crore in Indian equities and the total inflow stands at ₹2.37 lakh crore taking into account debt, hybrid, debt-VRR, and equities, according to NSDL data. FPIs' net investment in Indian debt market stands at ₹68,663 crore during 2023.
Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.
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