Foreign portfolio investors (FPIs) have withdrawn over Rs 12,000 crore from Indian equities, primarily due to the sustained rise in US bond yields and the uncertain environment resulting from the Israel-Hamas conflict. However, FPIs have invested over Rs 5,700 crore in the Indian debt market during this period, according to data from depositories.
Himanshu Srivastava, Associate Director – Manager Research at Morningstar Investment Adviser India, suggests that the trajectory of FPIs’ investments in India will be influenced by global inflation, interest rate dynamics, and the developments and intensity of the Israel-Hamas conflict. Geopolitical tensions can elevate risk, affecting foreign capital inflows into emerging markets like India.
The recent outflow is attributed to global uncertainties, particularly the geopolitical issues in Israel and Ukraine, which have created instability in international markets. The sharp spike in US bond yields, reaching a 17-year high of 5 percent on October 19, is also cited as a reason for the sustained selling.
In response to the global events, there could be a focus on safe-haven assets such as gold and the US dollar. The Rs 5,700 crore inflow into the debt market is explained by factors like FPIs diversifying their investments due to global uncertainty, attractive yields in Indian bonds, and expectations of rupee stability. The inclusion of India in the JP Morgan Global Bond Index is also mentioned as a contributing factor.
This approach of FPIs reflects their dynamic investment strategies in response to changing circumstances, as they shift focus from one asset class to another. The total FPI investment in equity has reached Rs 1.08 lakh crore, with close to Rs 35,000 crore in the debt market this year. In terms of sectors, FPIs have been selling across various sectors, with purchases subdued in the automobile and capital goods sectors, while they have been buyers in the telecom sector.