In a remarkable turn of events within the Indian stock market, foreign portfolio investors (FPIs) have exhibited caution, retracting Rs 325 crore from Indian equities in the opening days of April. This shift in investment strategy by FPIs is attributed to the heightened valuations present within the market and the forthcoming general elections.
Following a robust investment drive that witnessed an influx of Rs 35,000 crore in March and an additional Rs 1,539 crore in February, the recent data from depositories signal a change in the trend. Market analysts are scrutinizing these numbers, considering the possible implications for the Indian stock landscape.
The increase in the US 10-year yield, which has surged to 4.4 percent, is cited as a factor that may influence FPI investment patterns in India over the short term. Despite this, VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, remains optimistic about the outlook for FPI involvement in India. He suggests that selling by FPIs is likely to be restrained due to the enduring bullish trends and consistent record-setting in the Indian stock markets.
Krishna Appala, Smallcase Manager and Senior Research Analyst at Capitalmind, forecasts a potential rebound in FPI investments post-elections or in response to early indications of a rate reduction by the US Federal Reserve. This anticipation is supported by the positive momentum observed in the Indian stock markets.
Conversely, the debt markets have experienced a net investment of Rs 1,215 crore from FPIs within the same timeframe. The existing yield on Indian government securities (G-Sec), which sits at 7.1 percent compared to the US 10-year yield of 4.3 percent, presents a striking opportunity for FPIs to capitalize on. This discrepancy in yields appears to be influencing a pivot by FPIs towards the more lucrative bond instruments in both the US and Indian markets.
The proactive engagement of FPIs in the debt markets also stems from the anticipated inclusion of Indian government bonds in the JP Morgan Index. With substantial investments of Rs 22,419 crore in February and over Rs 38,000 crore in the two preceding months, FPIs are aligning their portfolios to benefit from this milestone event, slated for June 2024. The inclusion holds the potential to marshal an estimated USD 20-40 billion into the Indian economy over the subsequent 18 to 24 months following the inclusion. Such a development is poised to enhance the accessibility of Indian bonds to a broader array of foreign investors and provide a boon to the Indian rupee and the national economy.
FPIs have not uniformly withdrawn across sectors. Instead, the current investment pattern shows a selective approach with significant sell-offs in the Fast-Moving Consumer Goods (FMCG) sector while increasing their stakes in telecommunications and real estate.
Despite recent outflows in equities, the cumulative influx for the year has been substantial, with equities attracting more than Rs 10,500 crore and the debt market drawing in excess of Rs 57,000 crore from FPIs.
This delicate interplay between cautious retreats from equities and an amplified commitment to debt indicates a nuanced strategy by FPIs as they navigate the Indian financial terrain amid global uncertainties and domestic events. It remains to be seen how FPI investment trends will evolve, particularly with the looming general elections and shifts in global economic policies, which are likely to further reshape the market dynamics in India.
