Due to rising interest rates and geopolitical unrest in the Middle East, Foreign Portfolio Investors (FPIs) continued their selling binge, withdrawing nearly Rs 3,400 crore from the Indian equities markets in the first three trading days of November.
This followed withdrawals by these investors of Rs 14,767 crore in September and Rs 24,548 crore in October, according to statistics from the depositories.
Prior to the withdrawal, FPIs made a constant stream of purchases of Indian stocks in the last six months, from March to August, bringing in a total of Rs 1.74 lakh billion.
Since the primary catalyst for FPI selling, rising bond rates, has reversed after the US Federal Reserve signaled a dovish position in its November meeting, it seems doubtful that this selling trend will continue in the future.
The Fed Chairman Jerome Powell’s somewhat dovish remarks that “despite elevated inflation, inflationary expectations remain well anchored” are the primary cause of this turnaround in bond rates. According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, “the market has interpreted this statement as the end of the rate hiking cycle.”
Based on the information provided by the depositories, FPIs sold shares worth Rs 3,412 crore between November 1 and November 3.
Since the beginning of September, FPIs have been selling aggressively.
“This could be largely attributed to the rising rates on US Treasury bonds and the increasing geopolitical tensions brought on by the conflict between Israel and Hamas,” said Himanshu Srivastava, Associate Director, Manager of Research at Morningstar Investment Adviser India.
“The global landscape has become significantly more uncertain, with a tripled impact of recessionary concerns, rising inflation, and the outbreak of geopolitical conflicts in the first week of October,” said Bharat Dhawan, Managing Partner of professional consulting company Mazars in India. Experts predict that under the present circumstances, safe-haven assets like gold and US dollars may get more attention.
In contrast, statistics indicated that the debt market brought in Rs 1,984 crore during the reviewed period, after its receipt of Rs 6,381 crore in October.
According to Morningstar’s Srivastava, this strategy may be an attempt by foreign investors to strategically allocate money to Indian debt in the near future with the goal of rerouting funds into the stock markets when circumstances improve.
Foreign fund engagement in the Indian bond markets has increased as a result of Indian G-Sec’s inclusion in the JP Morgan Government Bond Index Emerging Markets (GBI-EM), according to Sahil Dhingra, smallcase manager and founder of Alvez Capital.
With this, FPIs have already invested a total of Rs 92,560 crore in equities and Rs 37,485 crore in debt markets this year.Frontline banking, autos, capital goods, and mid-caps in IT and real estate are among the industries that are expected to do well.
