आम चुनाव के बीच राजनीतिक अनिश्चितता के कारण एफपीआई ने मई में इक्विटी से ₹17,000 करोड़ निकाले

आम चुनाव के बीच राजनीतिक अनिश्चितता के कारण एफपीआई ने मई में इक्विटी से ₹17,000 करोड़ निकाले

FPIs withdraw ₹17,000 crore from equities in May on political uncertainty amid general election

Foreign investors withdrew ₹17,000 crore from Indian equities due to election uncertainty, profit booking, and high valuations; DIIs remain buyers.

  • Business
  • 42
  • 12, May, 2024
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Sampda Gupta
  • @SampdaGupta

FPIs withdraw ₹17,000 crore from equities in May on political uncertainty amid general election

In the first ten days of May, foreign investors withdrew a staggering ₹17,000 crore from Indian equities. This substantial outflow was primarily attributed to the ongoing general election in India and the resulting uncertainty surrounding its outcome. Additionally, concerns over expensive valuations and profit booking further fueled the withdrawal. The magnitude of this pullout far exceeded the net withdrawal of ₹8,700 crore observed for the entire month of April. The April outflow was primarily driven by apprehensions regarding a potential adjustment in India's tax treaty with Mauritius and a sustained increase in U.S. bond yields. Preceding these developments, Foreign Portfolio Investors (FPIs) had made substantial net investments of ₹35,098 crore in March and ₹1,539 crore in February. Looking ahead, market analysts anticipate that post-general elections, the robust financial performance of corporate India in the fourth quarter of the fiscal year 2023-24 could encourage renewed investor interest. Despite the cautious stance adopted by FPIs amid the ongoing electoral proceedings, there is optimism that favorable election outcomes and the establishment of political stability could prompt their return in significant numbers. Trivesh D., the Chief Operating Officer at Tradejini, highlighted this perspective, emphasizing the potential resurgence of FPI activity post-election clarity. Data from depositories revealed that FPIs experienced a net outflow of ₹17,083 crore from equities in May up to the 10th of the month. Several factors have contributed to this pronounced selling activity. The prevailing political uncertainty in India, coupled with the relatively high valuations of Indian markets, has prompted investors to exercise caution. Himanshu Srivastava, Associate Director at Morningstar Investment Research India, underscored the impact of these factors on investor sentiment, noting that many investors view this period as an opportune moment to secure profits and await further clarity on the political landscape.

Krishna Appala, a senior research analyst at Capitalmind, attributed the shift in FPI sentiment to the current political uncertainty in India and the attractiveness of U.S. interest rates. He remarked that FPIs have adopted a risk-averse approach in light of these factors. Additionally, there is speculation that profit booking by FPIs, particularly in anticipation of a market correction, may have contributed to the outflow. On the global front, the U.S. Federal Reserve's indication of no immediate rate cuts until inflation subsides has raised doubts about the possibility of an early rate reduction. Consequently, there has been an appreciation in the U.S. dollar, leading to a surge in U.S. Treasury yields. These global dynamics have influenced FPI behavior, contributing to their withdrawal of ₹1,602 crore from the Indian debt market during the period under review.

Prior to the recent outflow, foreign investors had injected substantial amounts into the Indian markets, with notable inflows recorded in March, February, and January. The anticipation of the inclusion of Indian government bonds in the JP Morgan Index had been a significant driver of these inflows. This inclusion, scheduled for June 2024, is expected to attract substantial foreign investment, potentially ranging from $20 to $40 billion over the subsequent 18 to 24 months. In contrast to FPIs, domestic institutional investors (DIIs) have emerged as sustained buyers in the Indian markets. V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted that DIIs have consistently purchased equities throughout May, with cumulative buying reaching ₹19,410 crore. Despite the significant outflow by FPIs in 2024 so far, they have maintained a net investment of ₹14,307 crore in the debt market. Overall, the recent withdrawal by FPIs underscores the impact of domestic and global factors on investor sentiment and capital flows in Indian markets. The outcome of the general election, coupled with global economic developments, will likely continue to influence market dynamics in the coming months.

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Sampda Gupta

  • @SampdaGupta