General Elections 2024 Results Tomorrow: Will FPI trend shift in June? Experts weigh in as exit polls predict NDA win

Foreign portfolio investors (FPIs) continued to be net sellers in the Indian market throughout May, marking a trend that began with the onset of the new fiscal year 2024-25 (FY25). Various factors contributed to this, including volatility stemming from the Lok Sabha elections, a hawkish stance adopted by global central banks, strong performance in Chinese markets, and other global cues. These factors collectively dampened the sentiment of foreign investors towards the Indian market.

As of May 31, FPIs have sold off Indian equities worth ₹25,586 crore, leading to a total outflow of ₹12,911 crore when considering debt, hybrid, debt-VRR, and equities, according to data from the National Securities Depository Ltd (NSDL). Despite this, FPIs maintained their status as net buyers in the Indian debt market, with total inflows amounting to ₹8,761 crore in May 2024.

Read here: Why did FPIs dump ₹25,586 crore worth of Indian shares in May—Explained with 4 key reasons

The selling in May also comes on the back of high volatility in the Indian market during the month. The benchmarks fell sharply in the first half of the month on the back of FPI selling, rise in US bond yields, and uncertainty of the election results. However, they recovered in the second half with the benchmarks hitting new peaks and key levels as the hopes of a Modi win grew stronger. Overall, the Nifty fell 0.33 percent during the month of May.

"FPIs have been sellers in equity on most trading days in May. As per NSDL data FPIs have sold equity for ₹25586 in May. The selling in the cash market till the 30th has been excessive at ₹43,827 crore. The main trigger for the FPI selling has been the outperformance of the Chinese stocks. The Hang Seng index boomed 8 percent in the first half of May triggering selling in India and buying in Chinese stocks. Another reason was the spike in US bond yields. Whenever the US 10-year bond yields rose above 4.5 percent FPIs sold in emerging markets like India and moved money to bonds, these two factors triggered the selling of equity in India." said Dr V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Read here: Exit Polls 2024: Modi-led NDA poised for third term with 350-370 seats; what should investors do next?

Moreover, the selling of Indian equities by the FPIs in May surged significantly compared to the net outflow of over ₹8,700 crore observed in April. This heightened activity was driven by concerns surrounding a potential adjustment in India's tax treaty with Mauritius and a continued uptick in US bond yields. Prior to this, FPIs had made net investments of ₹35,098 crore in March and ₹1,539 crore in February. However, in January, they withdrew ₹25,743 crore, according to data from the depositories.

Overall in 2024 YTD, FPIs have sold ₹23,364 crore.

Debt

Meanwhile, FPIs remained net buyers in the country's debt market in May with inflows worth ₹8,761 crore. This comes after the FPIs sold ₹10,949 crore worth of Indian debt in April. Before April, FPIs were net buyers in this segment for 12 straight months since April 2023, taking the total investment to ₹1.2 lakh crore in the debt market in this period.

Read here: Infra, defence, railways PSU Banks, among key sectors in focus if BJP wins

"The long-term outlook for foreign portfolio investment (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. Considering the overall economic conditions, clarity on this matter will emerge in the full budget in July 2024, providing a clearer picture for FPI investors," said Vipul Bhowar, Director, Listed Investments, Waterfield Advisors.

Just in 2024 YTD, FPIs invested ₹53,670 crore in the debt market with inflows of ₹13,602 crore in March, ₹22,419 crore in February and ₹19,837 crore in January. 

Read here: Exit Poll 2024: How to trade keeping Lok Sabha Election results in mind?

With the exit polls predicting a comfortable win for the PM Modi-led NDA government with 350-370 seats, will the FPIs turn positive in June? Here's what experts believe.

Most believe that a stable political regime will likely see money returning to India as that will provide investors with better long-term visibility.

According to Vijayakumar, Chief Investment Strategist at Geojit Financial Services, FPI activity in June will be crucially influenced by the election results to be announced on June 4th and the market response to that. If the election results ensure political stability, the market is likely to respond positively to that. FPIs are also likely to turn buyers in such a scenario. However, in the medium term, US interest rates will exert more influence on FPI flows.

Read here: Adani Group stocks surge up to 18% as exit polls indicate Modi win

Meanwhile, Vipul Bhowar, Director, Listed Investments, Waterfield Advisors, pointed out that the relatively high valuations and weak earnings, particularly in the financial and IT sectors where FPIs have a high allocation, along with political uncertainties such as ambiguity around the outcome of the Lok Sabha elections, global risk-off sentiment, and the appeal of Chinese markets, have led to FPI selling.

However, strong GDP growth, manageable inflation, political stability, and the expectation that the RBI is done tightening monetary policy can create a positive outlook for the Indian economy, marking a turnaround from their net selling in May, he predicted.

Sunil Damania, Chief Investment Officer, MojoPMS, anticipates the market remaining volatile after June 4. "Once the election concludes, all eyes will be on the July budget announcement, triggering more speculation and potential market swings. The high market valuations could act as a barrier to significant market gains, but there's also a possibility of a downturn.

Despite the current short-term uncertainty, we maintain a positive outlook for the Indian equity market and project strong returns over the next three to five years," he said.

Read here: ICICI Bank, SBI, L&T, among 15 stock picks by Motilal Oswal after exit polls

Reiterating a similar view, Alok Jain, smallcase manager and founder, Weekend Investing, highlighted that in 2009 the market hit the upper circuit on a surprise win; in 2014, it ran up nearly 10% before the election result day and in 2019 also a few days of good run post results ensued. 

This time the market ran up from Nov to Feb but consolidated largely since then. If there is an outcome of continuation which the market is sensing on Monday, a lot of funds sitting on the sidelines can continue to pour in, he added.

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 decisions.