FPIs offload ₹424 crore in Indian equities as outflows sharply decline in February: Here’s why
Foreign portfolio investors (FPIs) continued January’s selling streak in Indian markets, however the outflows have sharply declined in February. According to market experts, FPIs continue buying in primary markets and debt, counterbalanced the total net sell-off amount so far in February. However, the capital outflow by FPIs stands at ₹26,168 crore so far in 2024.
FPIs have sold ₹424 crore worth of Indian equities and the total inflow stands at ₹18,633 crore as of February 23, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data.
“An interesting feature of the FPI trend recently is the decline in FPI equity outflows despite the rising bond yields in the US. Normally when the US 10-year yield rises above 4.15 per cent, the FPIs sell heavily. But this is not happening now,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
FIIs and DIIs
Foreign institutional investors (FIIs) were sellers for three out of five sessions last week, and the total divestment stood at ₹1,939.4 crore, while domestic institutional investors (DIIs) were buyers for four out of five sessions, with a total investment of ₹3,532.82 crore, according to stock exchange data.
‘’FII became net seller for financial services shares in first two weeks of Feb selling ₹,7536 crore after offloading ₹30,000 crore in Jan month. Investors are cautious on the banking sector due to credit demand moderating and struggle to raise deposits.” said Arvinder Singh Nanda, Senior Vice President, of Master Capital Services Ltd.
‘’Another two sectors which came on the seller list for FII are construction and telecom. The sectors which stay bullish for the FIIs are Healthcare, IT, consumer services and auto. It is expected that FIIs flow in India may increase amid strong earnings and investors globally are cautious about Chinese equities,” added Nanda.
Understanding FPI outflows
‘’Since the DIIs, HNIs and retail investors are the dominant players now and their sustained buying is pushing the market to newer records, FPIs have taken a backseat. In February through 23rd FPIs had net sold equity only for ₹423 crores, sharply down from the January level,” added Dr. V K Vijayakumar.
The resilience of the market is preventing the FPIs from selling aggressively despite attractive bond yields in the US. In debt, FPIs continue to be buyers having bought debt worth ₹18,589 crores in February so far.
Currently, foreign investors are on a risk-off mode, due to the slowdown in the emerging markets economy due to high interest rates, core inflation and above average valuation. Currently, India is undergoing a ripple effect, and this mood is expected to continue in H1CY24, according to market experts.
However, there is a high possibility of improvement in the mood during H2, they added. The degree of improvisation will depend on the level of contraction in interest rate, inflation, budget and pick up in high frequency economy data.
The selling by FPIs in equity would have been much higher in response to the rising US bond yields. But FPIs have been consistently losing the tug of war with DIIs and, therefore, they are a bit reluctant to press aggressive selling. They will have to buy the same stocks later, which they have been selling, when conditions are favourable for buying, according to Dr. V K Vijayakumar.
FPI activity in Indian 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.
FPI inflows into Indian equities during November 2023 stood at ₹9,001 crore, compared to over ₹39,000 crore worth of shares sold in September and October together, according to NSDL data. Taking into account debt, hybrid, debt-VRR, and equities, FPI inflows were at ₹24,546 crore during the month.
Overall, only four months in 2023–January, February, September, and October- saw net FPI outflows from Indian equities. May, June, and July each recorded FPI inflows above ₹43,800 crore.
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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