Foreign Portfolio Investors (FPIs) net sold Indian equities worth ₹19,000 crore in the cash market this past week, driven primarily by concerns over a potential U.S. recession and the unwinding of the yen carry trade, which caused a significant correction in global equity markets.
The net FPI outflows from Indian equities in August so far stood at ₹ 13,431 crore, depositories data showed. So far this calendar year, FPIs have net invested ₹ 22,135 crore in Indian equities.
FPIs have turned net sellers in August after robust net investments of ₹ 26,565 crore and ₹ 32,365 crore in June and July respectively.
In fact, FPIs have remained aggressive sellers of Indian equities since July 23 (budget day), net selling nearly ₹ 40,000 crore.
However, the strong domestic retail inflows into mutual funds and active buying by domestic institutional investors (DIIs) have offset the FPI outflows to large extent. Domestic savings continue to dominate external and foreign savings flows in Indian equity markets.
Nifty50 ended the week at 24,367.50, down 1.42 percent, while Sensex settled at 79,705.91, down 1.58 percent from the previous week.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, highlighted that globally stock markets witnessed a sharp correction for the week ended August9.
The correction was triggered by the unwinding of the yen carry trade and recession fears in the US, he said.
Going forward, if the Indian market continues to rise, FPIs are likely to press more sales since Indian stock valuations continue to remain elevated, particularly in relation to valuations in other markets, Vijayakumar added.
Alok Agarwal, Head - Quant & Fund Manager, Alchemy Capital Management, said that during periods of significant FPI sell-offs, DIIs have played a stabilizing role in mitigating volatility and supporting market confidence.
While short-term volatility in FPI flows is expected, the long-term outlook remains positive, he said.
“FPI holding in India is already at a 10-year low. India is a unique large country with stability in government along with double-digit economic growth, double-digit corporate earnings growth and double-digit corporate ROE. In my view, FPIs can’t remain out for a long period of time”, Agarwal added.
Sunil Damania, Chief Investment Officer, MojoPMS, said that FPIs typically pursue valuations. Currently, India’s valuations are at a premium compared to the historical premiums of other emerging markets. He also noted that FPIs generally do not heavily invest in the Indian market for two consecutive years, as per historical patterns.
Last year, the Indian market saw record inflows from FPIs, leading to expectations of muted inflows this year.
Debt Markets
FPIs continue to be big buyers of Indian sovereign debt with net inflows so far this month touching ₹ 6,261 crore. In July 2024, FPIs had pumped in ₹ 22,363 crore into Indian government debt. The net inflows were fuelled by India’s inclusion in J P Morgan’s Emerging Market government bond indices in late June 2024..
So far this calendar year, FPIs have pumped in net investments of ₹ 97,249 crore in debt market.
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