FPIs infuse ₹2,053 crore in Indian equities, snap January’s selling streak; Will buying continue?

FPIs have sold ₹2,053 crore worth of Indian equities and the total outflow stands at ₹7,099 crore as of February 2, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data.

Foreign institutional investors (FIIs) were buyers for three out of five sessions last week with a total divestment of ₹2,008.68 crore, while domestic institutional investors bought for all sessions with a total investment of ₹10,102.62 crore, according to stock exchange data.

Also Read: FPIs turn net sellers in January, offload ₹24,734 crore in Indian equities: Why did they snap buying streak?

‘’Global cues are better since the mother market US is appreciating the favourable trends in the US economy after the brief disappointment with the cautious Fed message. It is evident that the US is heading for a soft landing and rate cuts are coming. Correction in the dollar index to 103 and the US 10-year falling to 3.88 per cent may restrain the FIIs from selling,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Why did FPIs turn net sellers in January?

FPIs snapped their buying streak in early January over global cues as the US bond yields rose from 3.9 per cent to 4.18 per cent, triggering capital outflows from emerging markets such as India, according to market experts.

An important feature of the FPI flows in January this year was the divergent trends in equity and debt flows. While equity saw net selling of ₹25,734 crore debt saw net buying of ₹19,836 crores (NSDL). These figures are inclusive of cash market and primary market and others.

Dr. V K Vijayakumar of Geojit Financial Services said that there are three reasons for the trend picked up by FPIs in January. ‘’One, the US bond yields rose to around 4.16 per cent in January from around 3.88 per cent in December 2023. This prompted outflows from equity to high yielding US bonds,” said Dr. V K Vijayakumar.

‘’Two, Indian equity became the most expensive in the world (Nifty trading at PE of around 21 based on FY24 estimated earnings). This triggered equity selling in India. Third, some FPIs are doing the front running in the Indian bond market anticipating flows into the Indian bond market after the inclusion of India in the JP Morgan Emerging Market Bond Fund,” added the analyst.

Will FPI inflows continue in February?

Going forward, FPI inflows into the equity market will depend on the trends in the US bond yields and the equity market trends globally as well as in India. ‘’Since the US bond yields have again corrected sharply, FPIs are unlikely to sell in large volume in February. They may even turn buyers. The inflows into the debt market are likely to continue,” said Geojit’s Dr. V K Vijayakumar.

Currently, foreign investors are on a risk-off mode, due to the slowdown in the emerging markets economy due to high interest rates, core inflation and above average valuation. Currently, India is undergoing a ripple effect, and this mood is expected to continue in H1CY24, according to market experts. 

However, there is a high possibility of improvement in the mood during H2, they added. The degree of improvisation will depend on the level of contraction in interest rate, inflation, budget and pick up in high frequency economy data.

FPI activity in Indian markets

The inflow intensified in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.

For the entire calendar year 2023, FPIs bought ₹1.71 lakh crore in Indian equities and the total inflow stands at ₹2.37 lakh crore taking into account debt, hybrid, debt-VRR, and equities, according to NSDL data. FPIs’ net investment in Indian debt market stands at ₹68,663 crore during 2023.

FPI inflows into Indian equities during November 2023 stood at ₹9,001 crore, compared to over ₹39,000 crore worth of shares sold in September and October together, according to NSDL data. Taking into account debt, hybrid, debt-VRR, and equities, FPI inflows were at ₹24,546 crore during the month.

Overall, only four months in 2023–January, February, September, and October- saw net FPI outflows from Indian equities. May, June, and July each recorded FPI inflows above ₹43,800 crore.

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.

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Published: 03 Feb 2024, 06:33 PM IST