August 11th 2024.
Foreign investors have recently shifted their focus from investing in Indian equities to pulling out significant amounts of money, totaling over Rs 13,400 crore, in the month of August alone. This change in behavior can be attributed to the unwinding of the yen carry trade and concerns about a possible recession in the US.
According to data from depositories, foreign portfolio investors (FPIs) have already made a net investment of Rs 22,134 crore in equities so far this year. However, experts believe that if the market continues to rise, FPIs may continue to sell off their investments as Indian stock valuations remain high compared to other markets.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, stated that the recent outflow of funds is a result of the unwinding of the yen carry trade, which was triggered by the Bank of Japan's decision to raise interest rates to 0.25 per cent. Additionally, concerns about a potential recession in the US and escalating geopolitical tensions, such as the conflict between Israel and Iran, have also contributed to FPIs reducing their risk exposure.
In the previous months of July and June, FPIs had invested a total of Rs 32,365 crore and Rs 26,565 crore, respectively. However, in the months of May and April, they withdrew significant amounts of Rs 25,586 crore and Rs 8,700 crore, respectively, due to concerns about the Indian elections and changes in tax laws.
Himanshu Srivastava, Associate Director and Manager Research at Morningstar Investment Research India, also noted that the higher valuations of Indian markets have provided FPIs with an opportunity to take profits and invest elsewhere. Moreover, factors such as weak jobs data and uncertainty about the timing of interest rate cuts in the US have also contributed to the recent outflow from Indian equities.
In terms of specific sectors, FPIs were net sellers in financial services for the fortnight ended July 31. However, they were buyers in industries such as IT, autos, capital goods, and metals during the same period. On the other hand, FPIs have invested Rs 6,261 crore in the debt market in August, bringing their total investment in 2024 to Rs 97,249 crore.
Overall, the recent shift in FPI behavior highlights the importance of closely monitoring global economic trends and geopolitical events, as they can have a significant impact on the Indian market. As FPIs continue to re-evaluate their investment strategies, it will be interesting to see how the Indian equities market evolves in the coming months.
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