Foreign Investors Withdraw Rs 20,300 Crore from Indian Equities Amid Global Uncertainty

Foreign Portfolio Investors (FPIs) have made significant financial moves in the Indian market this month, driven by global economic factors and geopolitical events. FPIs have withdrawn over Rs 20,300 crore from Indian equities so far in October, primarily due to a sharp surge in US treasury yields and the ongoing Israel-Hamas conflict. However, a surprising trend has emerged as FPIs have pumped Rs 6,080 crore into the Indian debt market during this period.

Data from depositories reveals that Foreign Portfolio Investors (FPIs) sold shares amounting to Rs 20,356 crore within the first 27 days of October. This figure may expand as two trading sessions remain in the month. This comes after FPIs turned net sellers in September, withdrawing Rs 14,767 crore.

Before this outflow, FPIs had been steadily buying Indian equities for the previous six months, from March to August, accumulating equities worth Rs 1.74 lakh crore during this period.

In the current uncertain global scenario, experts suggest that there may be an increased focus on safe-haven assets such as gold and US dollars.

This year, FPIs have invested a total of Rs 1 lakh crore in Indian equities and over Rs 35,200 crore in the debt market. The sectors primarily affected by FPI selling include financial services and information technology (IT). These two segments make up a significant portion of FPI's Assets Under Management (AUM).

Shrikant Chouhan, Head of Research (Retail) at Kotak Securities Ltd, commented on the situation, "FII flows are likely to stay volatile in emerging markets, including India, due to weak global factors. Renewed uptick in US bond yields has led to risk-off sentiment among investors who are deploying funds in safe-haven assets. The West Asia conflict and mixed Q2 earnings so far have made investors jittery about the near-term prospects of domestic markets, leading to sell-offs. Once valuations start becoming attractive and volatility reduces, foreign inflows could make a comeback."

Dr V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, highlighted the sustained selling and its causes, "FPI selling continues unabated. In October through the 27th, FPIs have sold equity for Rs 20,356 crore. The selling through exchanges has been higher at Rs 25,575 crore. The primary reason for the sustained selling is the sharp spike in US bond yields, which took the 10-year yield to a 17-year high of 5%. The yield has now declined to 4.84%. With such high bond yields, it is rational for FPIs to take out some money. The Israel-Hamas conflict in West Asia and the uncertainty surrounding the conflict has added to negative sentiments in the market."

An intriguing aspect of FPI investment has been the increasing inflows into the debt market, which has remained resilient amidst equity outflows.

In summary, while the Indian equity market experiences a pullback in FPI investment due to global economic concerns and geopolitical tensions, the Indian debt market has bucked the trend by attracting fresh investments. The coming days will be crucial in determining whether FPI sentiment rebounds as the global economic landscape evolves.