Foreign Investors Change Their Stance, Dump Indian Equities In August. Find Out Why

This turn in sentiment in the Indian equities followed the huge slump seen in the Asian markets after the Bank of Japan hiked interest rates to record high levels

Foreign portfolio investors reversed their outlook towards Indian equities and became net sellers in August. The investors in the month, as of August 9, 2024, dumped Indian equities worth Rs 13,431 crore over recession worries in the US and the unwinding of the yen carry trade.

During the period, the investors poured in Rs 6,261 crore in the Indian debt market, official data with the depositories revealed. This turn in sentiment in the Indian equities followed the huge slump seen in the Asian markets after the Bank of Japan hiked interest rates to record high levels.

In the year so far, however, the investors infused Rs 22,134 crore in Indian equities, while the overall fund flow in the debt market stood at Rs 97,249 crore in 2024, reported PTI.

V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, explained that if the markets maintain a momentum going ahead, the foreign investors remain more likely to incline towards sales as Indian stock valuations would also remain on the higher side, specifically in comparison to global markets.

This withdrawal of funds from Indian equities came as a complete reversal from the prior inflows. In July, the investors poured in Rs 32,365 crore in the segment, while the infusion stood at Rs 26,565 crore in June.

Vijayakumar explained, “The latest outflow was triggered by the unwinding of the yen carry trade after the Bank of Japan raised interest rates to 0.25 per cent and recession fears in the US.”

Elaborating on the factors that contributed to this change in sentiment, Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Research India, said that soaring geopolitical tensions like the conflict between Israel and Iran, impacted the influencers and drove them to cut down on their risk exposure.

“Additionally, the higher valuation of Indian markets provided foreign investors with an attractive profit-taking opportunity. Meanwhile, factors such as growing recession fears in the US, driven by weak jobs data, and uncertainty surrounding the timing of interest rate cuts led to the outflow from Indian equities,” Srivastava explained.