FPIs withdraw over Rs 10,000 crore from equities in September due to rising US rates

Foreign Portfolio Investors (FPIs) have withdrawn more than Rs 10,000 crore from Indian equities during the first three weeks of September. This withdrawal is primarily attributed to increasing US interest rates, concerns about a potential recession, and the perception of overvaluation in the domestic stock market.

Prior to this outflow, FPIs had been consistently investing in Indian equities for the past six months, bringing in a substantial Rs 1.74 lakh crore between March and August.

Mayank Mehra, the manager and principal partner at Craving Alpha, is optimistic about the future. He believes that strong economic growth prospects, attractive valuations, and government reforms could encourage foreign investment in the coming months.

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggests that FPIs may continue selling as long as high valuations persist and US bond yields remain attractive. The US 10-year bond yield currently stands at around 4.49 per cent.

Data from depositories reveals that, in the first 15 trading days of September, FPIs were net sellers for 11 days, resulting in a total withdrawal of Rs 10,164 crore. This figure includes transactions made through bulk deals and investments in the primary market. Of this total withdrawal, over Rs 4,700 crore was pulled out in just the last week of September.

This recent outflow follows a significant drop in FPI investment in equities in August, reaching a four-month low of Rs 12,262 crore.

Investor sentiment has been cautious due to concerns about inflation, the interest rate landscape in the US, and uncertainties surrounding global economic growth, according to Himanshu Srivastava, Associate Director, Manager Research at Morningstar India.

On the positive side, Hitesh Jain, Strategist Institutional Equities Research at YES Securities India, predicts that despite the challenges posed by higher oil prices and elevated US yields, stable economic growth in India compared to other emerging markets may attract FPIs back to Indian equities.

In contrast to the equity market, FPIs invested Rs 295 crore in India's debt market during the same period. This brings the total FPI investment in equities to Rs 1.25 lakh crore and close to Rs 28,476 crore in the debt market for the year so far.

Sectoral data indicates that, as of September 15, sectors such as mining, power, services, oil, and telecommunications experienced the highest outflows, while financial services, capital goods, consumer services, IT, and real estate witnessed cumulative buying activity.

(With PTI inputs)