FPIs invest ₹4,500 crore in December; may turn cautious ahead of Fed meet

After investing over ₹36,200 crore last month, foreign investors continued their positive momentum and infused ₹4,500 crore in the Indian equity markets so far in December, mainly due to the decline in the dollar index.

These investments include equity, debt secondary and primary markets. In the equity markets alone as per the stock exchange data, FPIs were sellers to the tune of ₹5657 crore in the cash markets. They were net sellers worth ₹7165 crore in the index futures segment and ₹6663 crore in the stock futures segment. The domestic institutional investors were net buyers of shares worth ₹7089 crore in the cash markets.

However, foreign portfolio investors (FPIs) turned sellers in the last four trading sessions and pulled out ₹3,300 crore as they are adopting a cautious stance ahead of the US Federal Reserve's decision on the interest rate.

Going forward, in the near term, FPIs are likely to make only modest purchases in performing sectors and may continue to sell and book profits in sectors where they are sitting on big profits, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

More money is likely to move into cheaper markets like China and South Korea where the valuations are compelling now, he noted.

"Even though India will continue to attract foreign capital the high valuations in India will be a deterrent," Vijayakumar added.

According to data with the depositories, FPIs invested a net sum of ₹4,500 crore in equities during December 1-9.

This came after a net investment of ₹36,239 crore in November, primarily due to the weakening of the US dollar index and positivity about overall macroeconomic trends.

Prior to this, foreign investors pulled out ₹8 crore in October and ₹7,624 crore in September.

Even though FPIs continued to buy in early December, they turned sellers in recent days. The decline in the dollar index to below 105 was the major factor that triggered inflows, Vijayakumar said.

Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, believes that the outflow in the last four trading sessions could be due to FPIs  adopting a cautious stance ahead of the US Federal Reserve's decision on the interest rate.

The final meeting of the Federal Open Market Committee (FOMC) for the year is scheduled on December 13-14.

The next few weeks could be crucial for India’s markets since the Finance Minister will present the annual budget on February 1, 2023. There are rumours that the Finance Minister would be playing around with stock market related taxes, analysts said.

Moreover, there continues to be a gloomy outlook for the US economy. Given the aggressive rate hike by the US Fed, there is a growing expectation that the US economy may trip into recession in the second half of 2023. These concerns could have prompted investors to take a break from their buying spree, he said.

In addition, Indian markets are trading at their all-time high levels. This could have also led FPIs to book profits. 

Apart from equities, foreign investors have injected a net sum of ₹2,467 crore into the debt market during the period under review.

Overall, FPI flows were negative across emerging markets such as the Philippines, South Korea, Taiwan, Thailand and Indonesia so far this month.