FPIs Remain Cautious, Dump Indian Equities Worth Rs 17,083 Crore In May So Far

As of May 10, the investors pulled out Rs 1,602 crore from the Indian debt market, official data revealed. This outflow was also attributed to the surging valuations and profit booking

The US Fed has given no indication of a cut in interest rates till inflation eases, resulting in increasing doubt about a potential rate cut

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Foreign portfolio investors (FPI) continued to exhibit bearish sentiments towards Indian equities and withdrew Rs 17,000 crore from the segment in the first 10 days of May so far, amidst the ongoing general elections and the uncertainty regarding the results of the same. During the same time, the investors pulled out Rs 1,602 crore from the Indian debt market, official data with the depositories revealed.

This outflow was also attributed to the surging valuations and profit booking. The fund outflow in the Indian equities remained much higher than that seen in April at Rs 8,700 crore, as worries remained regarding the revisions in India’s tax treaty with Mauritius and a consistent increase in the US bond yields, reported PTI. 

Prior to the outflow, the investors infused Rs 35,098 crore in March and Rs 1,539 crore in February in Indian equities. Elaborating on the outlook, Trivesh D, COO, Tradejini, noted, “Looking ahead, post-general elections, corporate India's strong financial performance in Q4 FY24 is anticipated to be rewarded. While FPIs may adopt a cautious stance until the election results are clear, favourable outcomes and established political stability could see their return in significant numbers.” He added that the investors could be profit booking in expectation of a correction in the market, specifically near the results day. 

The exact withdrawal of funds stood at Rs 17,083 crore in equities as of May 10, 2024. Explaining the fund flow, Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Research India, said, “There are multiple reasons behind this aggressive selling by FPIs. With the ongoing general election and the uncertainty surrounding its outcome, investors are wary to enter the markets before the election results. Also, with Indian markets trading at relatively high valuations, many investors would have found this as an opportunity to book profit and wait until more clarity emerges on the country's political landscape.”

Krishna Appala, Smallcase Manager and Senior Research Analyst, Capitalmind, expressed his agreement with the sentiment and stated that the investors have adapted a risk-off mode seeing the current political uncertainty in the country and the lucrative interest rates in the US.

Notably, the US Fed has given no indication of a cut in interest rates till inflation eases, resulting in increasing doubt about a potential rate cut. This has led to an appreciation in the US currency and a hike in the US Treasury returns. 

Collectively, the investors have pulled out Rs 14,860 crore from equities in the year so far, and invested Rs 14,307 crore in the debt market in the period. The outflow in the Indian debt market in May follows an infusion of Rs 13,602 crore in March, Rs 22,419 crore in February, and Rs 19,836 crore in January.