FPIs snap 2-month selling streak, invest ₹12,170 crore in Indian equities; 3 key reasons behind inflows

Foreign portfolio investors (FPIs) have finally snapped their two-month selling streak in Indian equities this month after stability returned to Indian markets with a fall in the 'VIX' volatility index. FPIs had halted their buying streak with the onset of the new fiscal 2024-25 (FY25). Volatility due to Lok Sabha elections 2024 and results, outperformance in Chinese markets, and other global cues have weighed on the sentiments of foreign investors.

FPIs invested ₹12,170 crore worth of Indian equities and the net investment stood at ₹25,085 crore as of June 21, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. The total debt inflows stand at ₹10,575 crore till the third week of June.

Also Read: Dividend Stocks: Titan, REC, Bajaj Holdings, IndusInd Bank, among others to trade ex-dividend next week; Full list here

‘’It is interesting to note that this net sell figure is composed of selling through the exchanges for ₹45,794 crore and buying through the ‘primary market and others’ for ₹34,600 crore. Clearly, FPIs are selling where valuations are high and buying where valuations are reasonable,'' said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
 

Why did FPIs snap selling streak in June?

The first week of June witnessed massive volatility in FPI flows in response to exit polls and the actual election results. FPIs bought equity for ₹6,521 crore on June 3 in response to exit polls. But when the actual results fell far short of what the exit polls indicated, the market crashed on June 4th and FPIs, too, panicked and sold stocks for ₹12,259 crore, according to Dr. V K Vijayakumar.

Also Read: GST Council Meeting: FM-led panel approves biometric authentication, 12% rate on milk cans; 10 key highlights

Market experts noted that FPIs have now altered their position in the equity market following the election results, injecting ₹23,786 crore since June 10th. There are three primary reasons for this positive inflow. First, the continuity of the government assures ongoing reforms. Second, the Chinese economy is decelerating, as evidenced by a 12 per cent decline in copper prices over the past month. Third, certain block deals in the market have been eagerly taken up by FPIs, according to Sunil Damania, Chief Investment Officer, MojoPMS.

However, these FPI inflows are concentrated in a select few stocks rather than being widespread across the market or sectors. ‘’We believe that FPI inflows will remain constrained due to the high valuations currently commanded by the Indian equity market. FPIs are no longer the primary market influencers, as robust domestic inflows mitigate the impact of FPI outflows. Consequently, FPI outflows are no longer significant market events,'' said Damania.

The long-term outlook for FPI flows into Indian debt is positive due to India's inclusion in global bond indices. However, near-term flows are being impacted by global macroeconomic uncertainty and volatility. The trend will reverse once the interest rate outlook becomes clearer, according to analysts.
 

FPI activity in Indian markets

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 initially 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 especially triggered foreign fund inflows into debt markets. FPIs turned massive sellers in January 2024 snapping their buying streak as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.

However, inflow intensified in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.

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