Foreign Portfolio Investors (FPI) continued to be net sellers in equities in February so far even while doubling down on Indian debt markets, pumping as much as ₹15,093 crore in first nine days of this month, data with depositories showed.

Till February 9, FPIs have been net sellers on Indian equities to the tune of ₹3,074 crore, reaffirming the divergent trend seen in January 2024. 

Last month, on the back of rich valuations in India and rising US ten-year yields, FPIs net sold Indian equities worth ₹25,744 crore even as they remained bullish on sovereign debt, pumping in ₹19,836 crore in the debt markets.

Taken together till February 9, the FPIs have so far this year net sold equities worth ₹28,818 crore and bought sovereign debt to the tune of ₹34,929 crore, official data showed.

Commenting on this divergent trend, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said that the main trigger for this divergent trend in equity and debt is the high valuation in the Indian equity market and the rising bond yields in the US. 

“A reversal of the FPI selling in equity will happen when the US bond yields drift down and stay there for long”, Vijayakumar added.

Vijayakumar highlighted that FPIs were massive sellers in financials in the last fortnight of January 2024 to the tune of ₹31,261 crore. “This explains the underperformance of Bank Nifty in general and some leading private sector banks in particular”, he added.

Ahead of India’s inclusion in global bond indices from June 2024 this year, FPIs have been briskly buying sovereign debt since November last year. In December 2023 and November 2023, they invested ₹18,302 crore and ₹14,860 crore respectively in Indian debt markets.

Jefferies’ Advice

Meanwhile, Christopher Wood, Global Head of Equity Strategy at Jefferies, said that investors must pay more attention to the stocks of Indian public sector companies and highlighted Prime Minister Narendra Modi government’s focus on value creation in the recent budget.

These state-owned entity stocks are the ‘cheaper part of the Indian market’, Wood said in his popular Greed & Fear weekly newsletter.

Wood said he was pleasantly surprised at the just announced Union Budget being almost devoid of vote-buying populism.

He highlighted that the government in the budget, as regards the disinvestment/privatisation agenda, signalled that the focus will be on “value creation” in public sector companies.

“In our view, this is a reason for investors to pay more attention to a cheaper part of the Indian market, namely SOEs (state-owned entities),” Wood said.

Wood also noted that it has been an ongoing feature of Modi’s government that the fiscal deficits have been used mainly to finance infrastructure investments rather than transfer payments