Foreign investors take out Rs 14,800 crore from equities in June on poll results, attractive Chinese stock valuations

Foreign investors withdrew nearly Rs 14,800 crore from domestic stocks in the first week of this month, influenced by India's Lok Sabha election results and attractive valuations of Chinese stocks. The outflow came following a net outflow of Rs 25,586 crore in May on poll jitters and more than Rs 8,700 crore in April on concerns over a tweak in India's tax treaty with Mauritius and a sustained rise in US bond yields.

Before that, FPIs made a net investment of Rs 35,098 crore in March and Rs 1,539 crore in February, while they took out Rs 25,743 crore in January, data with the depositories showed.

From a medium to long-term perspective, the direction of interest rates will remain a key driver for foreign investment flows into the Indian equity markets.

According to the data, Foreign Portfolio Investors (FPIs) made a net withdrawal of Rs 14,794 crore this month (till June 7).

The general election results in India significantly influenced foreign investor flows in Indian equity markets in June.

Last week began optimistically as exit polls indicated a decisive victory for the BJP and the NDA government, Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Research India, said.

However, the actual results diverged considerably from these expectations, leading to a reversal in market sentiment, thereby triggering a massive outflow by foreign investors.

Foreign investors were also seemingly concerned by the fact that no party could get a clear majority in this parliamentary election, which would have prompted them to adopt a wait and watch approach, he added.

FPIs regard Indian valuations to be very high and, therefore, capital is getting shifted to cheaper markets.

The FPI pessimism regarding Chinese stocks appears to be over and there is a trend of investing in Chinese stocks listed in the Hong Kong Exchange since the valuations of Chinese stocks have turned very attractive, V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

On the other hand, FPIs invested over Rs 4,000 crore in the debt market. Prior to this, foreign investors put in Rs 13,602 crore in March, Rs 22,419 crore in February and Rs 19,836 crore in January.

This inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.

Market experts believe that long-term outlook for FPI flows into Indian debt is positive due to India's inclusion in global bond indices.

However, near-term flows are being impacted by global macroeconomic uncertainty and volatility.

Overall, FPIs withdrew a net amount of Rs 38,158 crore from equities in 2024 so far, however, invested Rs 57,677 crore in the debt market.