Foreign Investors Withdraw ₹13,400 Crore from Indian Equities in August Amid Market Concerns
News Mania Desk/Agnibeena Ghosh/11th August 2024
Foreign Portfolio Investors (FPIs) have shifted their stance in August, withdrawing over ₹13,400 crore from Indian equities after being net buyers in the previous two months. This reversal is attributed to the unwinding of the yen carry trade and growing recession fears in the United States.
Data from depositories reveals that despite the recent outflows, FPIs have still made a net investment of ₹22,134 crore in Indian equities so far in 2024. However, the recent sell-off signals caution as global economic concerns weigh on investor sentiment.
The significant outflow in August, which stands at ₹13,431 crore as of August 9, contrasts sharply with the substantial inflows seen in the previous months. In July, FPIs had injected ₹32,365 crore into the Indian stock market, driven by expectations of sustained economic growth, ongoing reforms, and a better-than-expected earnings season. June also saw robust inflows of ₹26,565 crore, buoyed by political stability and a sharp rebound in the markets.
However, earlier in the year, FPIs had pulled out ₹25,586 crore in May, largely due to uncertainties surrounding the general elections, and over ₹8,700 crore in April, amid concerns related to changes in India’s tax treaty with Mauritius and rising US bond yields.
The current outflow from Indian equities is primarily linked to the unwinding of the yen carry trade. The Bank of Japan’s decision to raise interest rates to 0.25 percent prompted investors to reduce their exposure to riskier assets, including Indian equities. This move was further influenced by escalating geopolitical tensions, particularly the intensifying conflict between Israel and Iran, which has led investors to adopt a more cautious approach.
Himanshu Srivastava, Associate Director of Manager Research at Morningstar Investment Research India, noted that these factors, combined with the higher valuation of Indian markets, presented an attractive profit-taking opportunity for foreign investors. Additionally, growing fears of a recession in the US, exacerbated by weak jobs data and uncertainty surrounding the timing of interest rate cuts, have contributed to the outflows from Indian equities.
During the fortnight ending July 31, FPIs were consistent sellers in the financial services sector. However, they showed buying interest in sectors like IT, automobiles, capital goods, and metals, reflecting a selective approach to investment during this period of market volatility.
Despite the outflows from equities, FPIs have continued to invest in the Indian debt market, with an inflow of ₹6,261 crore in August so far. This brings the total investment in the debt market to ₹97,249 crore in 2024, indicating a continued interest in Indian debt instruments despite the equity market’s challenges.
As the Indian stock market remains relatively overvalued compared to other global markets, further sales by FPIs could be expected if the market continues to rise. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted that Indian stock valuations remain elevated, which could prompt FPIs to press more sales in the near future.
In summary, the recent withdrawal of funds by FPIs from Indian equities reflects a cautious approach driven by global economic uncertainties and higher market valuations. As the situation evolves, market participants will closely monitor the impact of these factors on future investment flows into India.
