After a strong 2023, FPIs turn net sellers in January 2024; will this trend continue?

After strong inflows in 2023, foreign portfolio investors (FPIs) turned net sellers in the first month of 2024, January. FPIs sold Indian equities worth ₹25,744 crore during the month on the back of a rise in US bond yields.

"The rising bond yields in the US is a matter of concern and this has triggered the recent bout of selling in the cash market. The rally in global stock markets was triggered by the Fed pivot which saw the 10-year bond yield falling from 5 percent to around 3.8 percent. Now the 10-year is back at 4.18 percent which indicates that the Fed rate cut will come only in H2 of 2024," said VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

January was a volatile month for the Indian market with the benchmark indices hitting record highs during the month but ending the month flat in the red, as investors remained cautious around the Interim Budget. Nifty ended the month 0.03 percent lower on the back of weak global cues. However, decent December quarter earnings as well as hopes of a rate cut in March capped the losses.

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One must note that FPIs started 2024 on a positive note as investments saw a sharp uptick in December 2023 but then turned net sellers in the latter half of the month.

Before January, FPIs were net sellers in October 2023, selling Indian equities worth ₹24,548 crore. However, in November 2023 and December 2023, they bought equities worth ₹9,001 crore and 66,135 crore.

Overall in 2023, FPIs invested ₹1.71 lakh crore in Indian Equities.

Debt

FPIs invested ₹19,837 crore in the country's debt market during the period under review, up from inflows of ₹18,302 crore in December 2023. January was the 10th straight month of inflows in the debt market since April 2023. The last time FPIs were net sellers in this segment was March 2023 with outflows worth ₹2,505 crore.

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Overall in 2023, FPI invested ₹68,663 crore in the debt space. The calendar year 2023 was the first time in 4 years that FPIs have become net buyers of Indian debt. Before this, FPIs were net buyers of Indian debt in 2019, when they invested ₹24,058 crore into bonds.

Outlook

Apurva Sheth, Head of Market Perspectives and Research, SAMCO Securities

The US interest has topped out and US 10-year bond yields which represent the cost of capital for corporates and consumers across the globe are trading around 4 percent off from their highs of 5 percent. This is good news for equity investors. First, bonds compete directly with equities. Falling yields mean equities become more attractive compared to bonds. Second falling yields lead to lowering the cost of capital for corporates and consumers. This leads to an increase in profitability and more liquidity in the hands of consumers. It's expected that US interest rates will be reduced by 75 bps in 2024 which will have a downside pressure on the yields. These factors will lead to positive fund flows from FIIs in India in the year 2024.

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Sheersham Gupta, Director and Senior Technical Analyst at Rupeezy

We can anticipate sustained inflows of foreign portfolio investments (FPIs) into Indian markets for two key reasons. First, rate cuts are expected this year so FPIs will have more funds to invest. Second, the Indian economy is set to outshine other larger economies.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.