After pumping in whopping $25 billion in Indian equities in 2023-24, Foreign Portfolio Investors (FPIs) have started the current fiscal on a watchful note, holding back from any aggressive investments. They have turned net sellers in equities to the tune of ₹325 crore in the first week in April, depositories data showed.

This cautious approach comes just a fortnight before India goes in for a seven phase general elections beginning from April 19 and ending on June 1. It also comes at a time when the US 10-year yield has spiked to 4.4 per cent.

VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that the spike in US ten year yield to 4.4 per cent will impact FPI flows into India in the near term. However, FPI selling will be limited despite the high US bond yields  since the Indian stock market is bullish and has been setting new records consistently, he added. 

“An important trend in FPI activity is the big selling in FMCG segment and big buying in telecom and realty”, Vijayakumar added. 

Analysts reckon that FPIs will return to buy more equities post general elections in India or when US Fed indicates more concrete timeline for interest rate cuts. 

In March 2024, FPIs had pumped in ₹35,098 crore into Indian equities, much higher than net inflows of ₹1,539 crore in February 2024. 

A GDP growth print of 8.4 per cent in Q3 of 2023-24 announced on February 29 this year surprised on the upside and bolstered the FPI interest in Indian equities in March 2024.

In January this year, FPIs were net sellers in equities to the tune of ₹25,744 crore. 

Outflows in equities

While the first week of April 2024 saw net outflows in equities, FPIs remained committed to the debt side, pumping in ₹1,215 crore so far this month. In March 2024, FPIs had pumped in ₹ 13,602 crore in debt markets, lower than ₹22,419 crore in February 2024 and ₹19,837 crore in January this year. 

In fiscal 2023-24, FPIs had in Indian debt made net investments of $14.5 billion, which was a nine year high.

Vijayakumar highlighted that there has been big swings in US bond yields this year in response to expectations regarding rate cuts by the Fed. The year started with market discounting six rate cuts in 2024 and consequently the yields drifted down. Then the market started factoring in only three rate cuts since the US labour market continued to be tight. Now many experts think that there may be only two rate cuts by the US Fed and these will be backloaded in 2024, according to Vijayakumar.

FPIs have been pumping money into the debt markets for the past six months, driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.

This inclusion is expected to lead to net inflows of $22 billion into Indian debt post June 2024.