Foreign portfolio investors (FPIs) have withdrawn over ₹12,000 crore from Indian equities this month so far, mainly due to a sustained rise in US bond yields and the uncertain environment resulting from the Israel-Hamas conflict.
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However, the story takes an intriguing turn on observing FPI activity in Indian debt as they have infused over ₹5,700 crore into the debt market during the period under review, data with the depositories showed.
Going ahead, the trajectory of FPIs' investments in India will be influenced not only by global inflation and interest rate dynamics but also by the developments and intensity of the Israel-Hamas conflict, Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Adviser India, said.
Geopolitical tensions tend to elevate risk, which typically hurts foreign capital inflows into emerging markets like India, he added.
According to the data with the depositories, foreign portfolio investors (FPIs) sold shares worth ₹12,146 crore this month (till October 20).
This came after FPIs turned net sellers in September and pulled out ₹14,767 crore.
Before the outflow, FPIs were incessantly buying Indian equities in the last six months -- from March to August -- and bought shares worth ₹1.74 lakh crore.
The latest outflow appears to be in response to the current global uncertainties. Geopolitical issues, particularly the conflicts in Israel and Ukraine, have cast shadows of instability over international markets, prompting FPIs to adopt a cautious stance in the Indian equity arena, Mayank Mehraa, smallcase manager and principal partner at Craving Alpha, said.
"The primary reason for the sustained selling was the sharp spike in US bond yields, which took the 10-year yield to a 17-year high of 5 per cent on 19th October, " V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.
In the current scenario, experts believe that there could be an enhanced focus on safe-haven assets, such as gold and the US dollar.
Explaining reasons for the ₹5,700 crore inflow in the debt market, Vijayakumar said this could be attributed to a host of factors such as FPIs diversifying their investment amidst global uncertainty and weakness in the global economy, Indian bonds are giving good yields and the rupee is expected to be stable given India's stable macros.
Another factor is the inclusion of India in the JP Morgan Global Bond Index, he added.
"This might be a strategy to sit tight on the sidelines in the equity market and await more stable conditions or potential corrections before diving back in. In essence, this dual approach of FPIs highlights the intricate dance they perform in response to global events," Mehraa said.
Their readiness to shift focus from one asset class to another underscores the dynamic nature of investment strategies in the face of changing circumstances, he added.
With this, the total investment by FPIs in equity has reached ₹1.08 lakh crore and close to ₹35,000 crore in the debt market this year so far.
In terms of sectors, FPIs have been selling across the board in sectors like financials, power, FMCG and IT, while purchasing was subdued in automobiles and capital goods. However, they were buyers in telecom.