FPIs invest ₹1,156 crore in Indian equities, remain net sellers in debt market; Here’s what experts predict

FPIs invested ₹1,156 crore worth of Indian equities and the total outflow stands at ₹771 crore as of May 3, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. The total debt outflows stand at ₹1,727 crore so far this month.

“In the two days of trading in May FPIs have invested ₹1,156 crore in equity and sold ₹1,726 crore in debt (Source: NSDL). The rising VIX is indicative of potential volatility. Market can turn highly volatile in the short-run,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

Also Read: US Fed to hold rates at 23-year high-mark until inflation cools, slows pace of balance sheet runoff: 5 key highlights

Will FPI inflow continue in Indian markets?

Market analysts said that the US Federal Reserve’s decision indicates rate cuts much lower-than-expected earlier this year. Inflation has turned stubborn at lower levels. However, the latest jobs data in the US indicates a slowing economy and, therefore, rate cuts may be necessitated. 

‘’The wage increase falling below four per cent also reflects a weakening labour market. From the stock market’s perspective this is good news. That’s why the US markets rallied sharply on Friday,” said Dr. V K Vijayakumar.

The market is at record highs. There has been a pre-election rally. It is not as strong as in the past. ⁠More than anything else, FPIs will respond to changes in the US bond yields. If the US bond yields fall and the Indian economy and markets do well they will turn aggressive buyers, according to the analyst.

Experts also highlighted that the positive factor is the fact that all FPI selling in the equity markets is getting absorbed by DIIs, HNIs and retail investors. This is the only factor that may reign in FPI selling in the short-term for now, they add.

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FPI activity in Indian markets

FPIs offloaded ₹8,671 crore in Indian equities last month and ₹10,949 crore in debt markets over high US bond yields. However, they pumped ₹35,098 crore in Indian equities during March 2024 – the highest inflows recorded in the first three months of 2024. FPI outflow initially declined in February 2024 until they were net buyers by the end of the month, despite high US bond yields. 

The inflow into Indian equities stood at ₹1,539 crore in February 2024 and the debt market investment rose to ₹22,419 crore during the month on top of the ₹19,836 crore bought in January. The inclusion of government bonds to JPMorgan and Bloomberg debt indices had especially triggered foreign fund inflows into debt markets. FPIs turned massive sellers in January 2024 snapping their buying streak as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.

However, 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.

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: 04 May 2024, 10:19 PM IST