June 9th 2024.
In the first week of this month, foreign investors decided to withdraw approximately Rs 14,800 crore from domestic stocks. Their decision was influenced by the recently concluded Lok Sabha elections in India, as well as the attractive valuations of Chinese stocks. This outflow of funds follows the trend of previous months, with foreign investors withdrawing Rs 25,586 crore in May and Rs 8,700 crore in April. These decisions were driven by concerns over the election results and changes in India's tax treaty with Mauritius, as well as a rise in US bond yields.
However, it is worth noting that in the months prior, foreign portfolio investors (FPIs) actually made a net investment of Rs 35,098 crore in March and Rs 1,539 crore in February. This was followed by a withdrawal of Rs 25,743 crore in January. This data, provided by the depositories, highlights the fact that the direction of interest rates remains a key factor in the flow of foreign investment into the Indian equity markets in the medium to long term.
In June, FPIs withdrew a net amount of Rs 14,794 crore, largely influenced by the results of the Indian general elections. According to Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India, the week began on a positive note with exit polls predicting a victory for the ruling BJP and NDA government. However, the actual results were different, leading to a change in market sentiment and a subsequent withdrawal of funds by foreign investors.
One of the main concerns for FPIs was the lack of a clear majority for any political party in the elections. This uncertainty may have prompted them to adopt a cautious approach before making any further investment decisions. Additionally, FPIs view Indian valuations as being quite high, leading them to shift their capital to cheaper markets. On the other hand, Chinese stocks listed on the Hong Kong Exchange have become increasingly attractive to foreign investors, resulting in a trend of investment in these stocks.
Despite the outflow from equities, FPIs still invested over Rs 4,000 crore in the debt market. This follows a similar trend in the previous months, with foreign investors putting in Rs 13,602 crore in March, Rs 22,419 crore in February, and Rs 19,836 crore in January. This inflow was mainly driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index. Experts believe that the long-term outlook for FPI flows into Indian debt is positive, especially with India's inclusion in global bond indices. However, in the short term, global macroeconomic uncertainty and volatility are impacting these flows.
In summary, in 2024 so far, FPIs have withdrawn a net amount of Rs 38,158 crore from equities while investing Rs 57,677 crore in the debt market. This highlights the ongoing volatility and uncertainty in the global market, which is affecting the flow of foreign investment into India.
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