FPIs withdrew Rs 22,000 crore from stocks in May due to poll jitters and Chinese market performance.
As the election picture becomes clearer, foreign portfolio investors (FPIs) are likely to buy in India as they cannot afford to miss out on the post-election results rally.
In fact, the rally could start even before the election results, said VK Vijayakumar, chief investment strategist at Geojit Financial Services.
Foreign portfolio investors (FPIs) have witnessed a net outflow of Rs 22,047 crore from equities this month (up to May 24), according to data from depository institutions.
“This massive sell-off was triggered by the extraordinary performance of Chinese stocks, with the Chinese-dominated Hang Seng Index (FPIs investing through the Hong Kong market as there are restrictions on investing through the Shanghai market) soaring 7.66% over the past month. said Vijayakumar. Election-related jitters may also have had an impact on FPI sales. Due to the ongoing general election in India and the uncertainty surrounding its outcome, foreign investors are currently wary of entering the Indian stock market before the election results are announced, said Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India. “The U.S. Federal Reserve recently said it would not proceed with rate cuts until inflation cooled and was consistently within its target range, raising skepticism about the possibility of an early rate cut.
“This has led to a rise in the value of the US dollar, leading to a surge in US Treasury yields. This does not bode well for emerging markets such as India, as in such a scenario investments also tend to shift away from riskier assets such as emerging market stocks and towards more prosperous assets. This is because it is a safer asset class such as the US dollar or US Treasury bonds,” he added.
On the other hand, FPIs invested Rs 2,009 crore in the debt market during the period under review.
Before these outflows, foreign investors had invested Rs 13,602 crore in March, Rs 22,419 crore in February and Rs 19,836 crore in January. These inflows were soon followed by the inclusion of Indian government bonds in JP Morgan indices.
“The long-term outlook for FPI inflows into Indian debt is positive due to India’s inclusion in global bond indices. However, near-term flows are affected by global macroeconomic uncertainty and volatility. The trend is likely to reverse as the interest rate outlook becomes clearer. “, said Vipul Bhowar, Director, Listed Investments, Waterfield Advisors.
JP Morgan Chase & Co. announced last September that it would add Indian government bonds to its benchmark emerging markets index from June 2024. This landmark inclusion is expected to benefit India by attracting approximately $20-40 billion over the next 18-24 months. .
Overall, FPIs have withdrawn a net amount of Rs 19,824 crore from equities so far in 2024, while investing Rs 46,917 crore in the debt market.
