FPIs have turned cautious as they pulled out Rs 325 crore from Indian equities in the first week of this month owing to relatively high valuations and the upcoming general elections.
The net outflow came after a staggering investment of Rs 35,000 crore in March and Rs 1,539 crore in February, data with the depositories showed.
Going ahead, Geojit Financial Services Chief Investment Strategist VK Vijayakumar said the US 10-year yield has spiked to 4.4 per cent, which will impact FPI (foreign portfolio investor) investment 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.
Senior Research Analyst at Capitalmind Krishna Appala believes that FPIs might return post-elections or upon early signs of a US Fed rate reduction.
According to the data with the depositories, FPIs withdrew Rs 325 crore from Indian equities this month (till April 5).
“Relatively high valuations and the looming general elections have made FPIs cautious, leading them to hold back from aggressive investments in the equity markets at this juncture,” Appala said.
On the other hand, FPIs have made a net investment of Rs 1,215 crore in the debt market during the period under review.
Indian government securities (G-Sec) 10-year yield standing at 7.1 per cent and the US 10-year at 4.3 per cent present a compelling case for FPIs. The risk-reward ratio is prompting them to shift their focus from equities to the higher yields offered by bond instruments in the US and India.
Moreover, FPIs have been pumping money into the debt markets for the past few months, driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.
They invested Rs 22,419 crore in February, Rs 19,836 crore and Rs 18,302 crore in January.
JP Morgan Chase & Co, in September last year, announced that it will add Indian government bonds to its benchmark emerging market index from June 2024.
This landmark inclusion is anticipated to benefit India by attracting around USD 20-40 billion in the subsequent 18 to 24 months.
This inflow is expected to make Indian bonds more accessible to foreign investors and potentially strengthen the rupee, thereby, bolstering the economy.
In terms of sectors, FPIs have turned into big sellers in the FMCG segment and buyers in telecom and realty.
Overall, the total inflow for this year so far stood at more than Rs 10,500 crore in equities and over Rs 57,000 crore in the debt market.
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