FPIs snap 2-month buying to turn net sellers in August: ₹13,431 crore offloaded in Indian equities, debt inflow stable

Foreign portfolio investors (FPIs) snapped their two-month buying streak in Indian equities and turned net sellers in August. FPIs were consistent buyers for June and July as stability had returned to Indian markets. However, FPIs had halted their buying streak with the onset of the new fiscal 2024-25 (FY25). 

FPIs sold ₹13,431 crore worth of Indian equities, and the net investment stood at ₹7,044 crore as of August 9, taking into account debt, hybrid, debt-VRR, and equities, according to the National Securities Depository Ltd (NSDL) data. The total investment in debt markets stood at ₹6,261 crore so far in August.

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"Globally stock markets witnessed a sharp correction for the week ended 9th August. The correction was triggered by the unwinding of the yen carry trade and recession fears in the US,'' said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

‘’FIIs resorted to big selling in the cash market. The selling in the cash market amounted to ₹19,544 crore in the first four days on the week. But on Friday when the market stabilised FIIs tuned buyers, though for a limited amount of ₹406 crore,'' he added.

What's fuelling the sell-off from FPIs in Indian markets?

According to market experts at Geojit, FIIs were sustained sellers in financial services for the fortnight ending 31st July, This partly explains the weakness in financial services segment in the market now. FIIs, during this period, were buyers in IT, autos, capital goods and metals.

Analysts believe that the domestic funds are bullish on the Indian markets due to several factors. This resilience is attributed to the robust economic growth of India, effective monetary policy by the central bank, and record inflows from retail investors.

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‘’Domestic funds have greater confidence in the long-term growth story of India, driven by sectors like manufacturing, pharmaceuticals, and renewable energy. The growing financial literacy and an increasing investment culture among Indians have boosted fund inflows, further fuelling market optimism,'' said Alok Agarwal, Head - Quant & Fund Manager, Alchemy Capital Management.

Despite global negative news, the Indian stock market has demonstrated remarkable resilience. This resilience is attributed to the robust economic growth of India, effective monetary policy by the central bank, and record inflows from retail investors. Unlike previous trends, retail investors are now using market dips as opportunities to increase their equity allocations.

‘’In typical scenarios, fund managers refrain from making significant cash calls on the market to avoid substantial underperformance. However, the strong inflows from retail investors are pressuring fund managers to invest in the equity market, leaving them with limited alternatives,'' said Sunil Damania, Chief Investment Officer, MojoPMS.

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‘’FPIs typically pursue valuations. Currently, India’s valuations are at a premium compared to historical premiums of other emerging markets. ‘’It's worth noting that FPIs generally do not heavily invest in the Indian market for two consecutive years, as per historical patterns. Last year, the Indian market saw record inflows from FPIs, leading to expectations of muted inflows this year. The average monthly inflows from FPIs in 2024 were ₹15,000 crore, which has come down to ₹4,000 crore year-to-date in 2024,''added Damania.

When will inflows resume?

Market analysts believe the investor fraternity looks at India as a preferred jurisdiction compared to other markets. They also highlight that FPIs in India will continue to grow under a stable government regime, a conducive environment backed by inflation control, fiscal prudence, and a far-sighted vision for India to become a global hub for capital markets.

According to Geojit's Dr. V K Vijayakumar, going forward, if the market continues to rise, FIIs are likely to press more sales since Indian stock valuations continue to remain elevated, particularly in relation to valuations in other markets.

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‘’Predicting FII flows remains challenging due to their sensitivity to global economic and geopolitical developments. However, there are reasons to be optimistic about a positive trend in the future. India's strong economic growth, coupled with its political stability and ongoing structural reforms, makes it an attractive destination for global investors,'' Alchemy's Alok Agarwal.

‘’Moreover, the increasing integration of India into global supply chains and its strategic initiatives in digital transformation and infrastructure development are likely to draw sustained foreign investments. While short-term volatility in FII flows is expected, the long-term outlook remains positive,'' added Agarwal.
 

FPI activity in Indian markets

In July, FPIs invested ₹32,365 crore in Indian equities, and the total investment in debt markets stood at ₹22,363 crore on the back of strong market resilience, which attracted greater inflows. 

FPIs snapped their two-month selling streak and turned net buyers in June, infusing ₹26,565 crore in Indian equities and ₹14,955 crore in the debt market. The selling reversed after stability returned to the market as election jitters faded.

In May 2024, FPIs offloaded ₹25,586 crore worth of Indian equities, and the debt inflows stood at ₹8,761 crore. Uncertainty over the outcome of the Lok Sabha elections 2024, high US bond yields, high Indian market valuations, and the outperformance of Chinese stocks weighed on sentiments.

FPIs offloaded ₹8,671 crore in Indian equities in April and ₹10,949 crore in debt markets over high US bond yields. However, they pumped ₹35,098 crore in Indian equities during March 2024 - the highest inflows recorded in the first three months of 2024. FPI outflow declined in February 2024 until they were net buyers by the end of the month despite high US bond yields.

The inflow into Indian equities stood at ₹1,539 crore in February 2024 and the debt market investment rose to ₹22,419 crore during the month on top of the ₹19,836 crore bought in January. The inclusion of government bonds to JPMorgan and Bloomberg debt indices had triggered foreign fund inflows into debt markets.

FPIs turned massive sellers in January 2024, snapping their buying streak. Investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023. However, inflow intensified in December 2023 after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of rate cuts. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.

According to NSDL data, FPIs bought ₹1.71 lakh crore in Indian equities for the entire calendar year 2023, and the total inflow, taking into account debt, hybrid, debt-VRR, and equities, stands at ₹2.37 lakh crore. FPIs' net investment in the Indian debt market stood at ₹68,663 crore during 2023.

Disclaimer: The views and recommendations provided in this analysis are those of individual analysts or broking companies, not Mint. We strongly advise investors to consult with certified experts before making any investment decisions, as market conditions can change rapidly and individual circumstances may vary.