Foreign portfolio investors (FPI) injected funds in these two months with the expectation of sustained economic growth, continued reform measures, a better-than-expected earnings season and political stability.
Prior to that, FPIs withdrew Rs 25,586 crore in May on election jitters and over Rs 8,700 crore in April on concerns over a tweak in India’s tax treaty with Mauritius and a sustained rise in US bond yields.
According to the data, FPIs withdrew a net amount of Rs 21,201 crore in actions so far this month (August 1-17).
So far this year, foreign investors have invested Rs 14,364 crore in equities, according to depositories’ data. The foreign investor outflows seen in August were mainly due to a combination of global and domestic factors. “Globally, concerns over the disintegration of the yen carry trade, possible global recession, slowing economic growth and ongoing geopolitical conflicts led to market volatility “The capital outflow was due to the unwinding of yen carry trades after the Bank of Japan raised interest rates to 0.25 percent,” said Vipul Bhowar, head of listed investments at Waterfield Advisors.
Domestically, after being net buyers in June and July, some FPIs may have chosen to book profits following a strong rally in the previous quarters.
Moreover, mixed quarterly earnings and relatively higher valuations have made Indian stocks less attractive, Bhowar added.
Himanshu Srivastava, associate director of manager research at Morningstar Investment Research India, said the post-Budget announcement of a hike in capital gains tax on equity investments has largely fueled this sell-off.
Moreover, FPIs have been cautious due to high valuations of Indian equities, coupled with global economic concerns such as rising fears of recession in the US amid weak jobs data, uncertainty over the timing of interest rate cuts and unwinding of the yen carry trade, he added.
A significant trend in FPI flows recently, which became more evident in August, is the sustained selling by FPIs through the stock market while continuing to invest through the “primary market and others” category. This difference in FPI behaviour is due to differences in valuations.
“Primary market issues have comparatively lower valuations, while in the secondary market, valuations remain high. Hence, frontline investors buy when securities are available at fair valuations and sell when valuations rise in the secondary market,” said VK Vijayakumar, chief investment strategist. Geojit Financial Services.
Meanwhile, foreign investors have poured Rs 9,112 crore into the debt market in August so far, taking the total to Rs 1 trillion so far in 2024.
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