FPIs withdraw Rs 20,300-cr from equities in Oct; invests Rs 6,080 cr in debt

Foreign Portfolio Investors (FPIs) have pulled out over Rs 20,300 crore from Indian equities this month so far, primarily due to a sharp surge in the US treasury yield, and the uncertain environment resulting from the Israel-Hamas conflict. However, the story takes an intriguing turn on observing FPI activity in Indian debt as they have infused Rs 6,080 crore into the debt market during the period under review, data with the depositories showed.

Going ahead, the future of FPI flows hinges on several factors, including the US Federal Reserve's November 2 meeting and global economic developments, Mayank Mehraa, smallcase manager and principal partner at Craving Alpha, said.

In the short term, FPIs are expected to remain cautious amid global uncertainty and increasing US interest rates. Nonetheless, India's strong economic growth prospects should maintain its appeal for foreign investors in both equities and debt, he added.

According to the data with the depositories, Foreign Portfolio Investors (FPIs) sold shares to the tune of Rs 20,356 crore this month (till October 27). This outflow figure might get broadened as there are two trading sessions left in this month.

This came after Foreign Portfolio Investors (FPIs) turned net sellers in September and pulled out Rs 14,767 crore.

Before the outflow, FPIs were incessantly buying Indian equities in the last six months from March to August and bought equities worth Rs 1.74 lakh crore during the period.

"Sharp surge in the US treasury yield during the week was the primary reason for FPIs pulling out of the Indian equity markets.

"The yield on 10-year US treasury bonds crossed the psychological barrier of 5 per cent on Monday for the first time in 16 years," Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Adviser India, said.

This made investors shift their focus away from emerging markets like India and focus on the safer investment avenues like the US Treasuries, where the risk-reward was more favourable, he added.

Further, the Israel-Hamas conflict in West Asia and the uncertainty surrounding the conflict has added to negative sentiments in the market, V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

"Global uncertainty has tripled, with recessionary and inflationary pressures being coupled with the geo-political conflict breaking out in the first week of the month," Barat Dhawan, Managing Partner, Mazars, said.

Further, cautiousness prevails as the September quarter earnings growth is expected to be slower than in the previous quarter, possibly disappointing investors, smallcase's Mehraa.

In the current scenario, experts believe that there could be an enhanced focus on safe-haven assets such as gold and US dollars.

Explaining reasons for the huge inflow in the debt market, Geojit's Vijayakumar said this could be attributed to a host of factors such as FPIs are diversifying their investment amidst global uncertainty and weakness in the global economy, Indian bonds are giving good yields and Rupee is expected to be stable given India's stable macros.

Another factor is the inclusion of Indian government bonds in the JP Morgan Global Bond Index, Abhishek Banerjee, Founder & CEO, Lotusdew Wealth & Investment Advisors, said.

With this, the total investment by FPIs in equity has reached Rs 1 lakh crore and over Rs 35,200 crore in the debt market this year so far.

In terms of sectors, FPIs have been selling in sectors like financials and IT.

FPI selling has impacted the financial services and IT segment more than others. The reason is that these two segments account for the major part of FPI's AUM (Assets Under Management).