Foreign portfolio investors (FPIs) have withdrawn Rs 21,201 crore from Indian equity markets in August, marking a sharp turnaround from their recent inflows. The outflow is attributed to a combination of global economic uncertainties and domestic factors.
In July, foreign investors had invested Rs 32,365 crore, following an earlier inflow of Rs 26,565 crore in June. These inflows were driven by expectations of sustained economic growth, favourable reform measures, strong earnings and political stability in India. Prior to these positive months, foreign investors had withdrawn Rs 25,586 crore in May due to election-related uncertainties and over Rs 8,700 crore in April, influenced by concerns over changes in India’s tax treaty with Mauritius and rising US bond yields.
The outflow of Rs 21,201 crore in August (during the period August 1-17) reflects a change in sentiment. According to Vipul Bhowar, head of listed investments at Waterfield Advisors, this trend is influenced by global factors such as the unwinding of the yen carry trade, fears of recession and ongoing geopolitical conflicts, which have contributed to market volatility and risk aversion. The unwinding of the yen carry trade was triggered by the Bank of Japan’s decision to raise interest rates to 0.25 per cent.
Domestically, after being net buyers in June and July, some FPIs chose to take advantage of the recent market rally by booking profits. Mixed quarterly earnings reports and relatively high valuations have also made Indian stocks less attractive. Moreover, Himanshu Srivastava, associate director at Morningstar Investment Research India, highlighted that the increase in capital gains tax on equity investments post-Budget has further boosted selling.
The caution of FDI investors is evident as they have been selling in the secondary market while continuing to invest in the primary market where valuations are comparatively lower. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said FDI investors are opting for fair valuations in primary market investments and selling higher value secondary market securities.
In contrast to capital outflows, FPIs invested Rs 9,112 crore in the Indian debt market in August, taking their total debt investments for 2024 to Rs 1 lakh crore.
(With PTI inputs)
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