Foreign investors withdraw Rs 12,000 crore from Indian equities in October

FPI in Indian equities: Foreign portfolio investors (FPIs) have pulled out more than Rs 12,000 crore from the Indian equity market this month, primarily driven by a sustained increase in US bond yields and the uncertainty arising from the Israel-Hamas conflict.

Interestingly, FPI activity in the Indian debt market presents a different picture, with investments amounting to over Rs 5,700 crore during this period, as data from depositories indicates.

The future course of FPI investments in India will be shaped by not only global inflation and interest rate dynamics but also the developments and intensity of geopolitical conflicts, such as the Israel-Hamas dispute, according to Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Adviser India.

Geopolitical tensions tend to elevate risk, which often impacts foreign capital inflows into emerging markets like India, he added. Data from the depositories reveals that foreign portfolio investors (FPIs) have sold shares worth Rs 12,146 crore in October (up to October 20).

This comes on the heels of FPIs turning net sellers in September when they withdrew Rs 14,767 crore. Prior to this recent outflow, FPIs consistently purchased Indian equities over the last six months, accumulating shares worth Rs 1.74 lakh crore from March to August.

Ongoing global uncertainties

The latest outflow seems to be a response to the ongoing global uncertainties. Geopolitical issues, particularly conflicts in Israel and Ukraine, have cast shadows of instability over international markets, prompting FPIs to adopt a cautious approach in the Indian equity market, as noted by Mayank Mehra, smallcase manager, and principal partner at Craving Alpha.

"The primary reason for the sustained selling was the sharp spike in US bond yields, which reached a 17-year high of 5 per cent on October 19," explained V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

In the current situation, experts anticipate a greater focus on safe-haven assets like gold and the US dollar.

Elaborating on the reasons for the Rs 5,700 crore inflow in the debt market, Vijayakumar mentioned that this could be attributed to several factors. FPIs may be diversifying their investments amid global uncertainty and economic weakness, Indian bonds offer attractive yields, and the stable macroeconomic conditions in India are expected to keep the rupee stable.

Another contributing factor is India's inclusion in the JP Morgan Global Bond Index, he added.

Mehra emphasised that this may be a strategy to wait on the sidelines in the equity market and await more stable conditions or potential corrections before reentering. It underscores the dynamic nature of investment strategies in response to changing circumstances.

With this, FPIs have invested a total of Rs 1.08 lakh crore in equities and nearly Rs 35,000 crore in the debt market this year. Regarding sectors, FPIs have been selling across various industries, including financials, power, FMCG, and IT, while their purchases have been subdued in automobiles and capital goods, with some interest shown in the telecom sector.

(With PTI inputs)