December 22nd 2024.
New Delhi: The past week saw a change in the trend for Foreign Portfolio Investors (FPIs) in the Indian equities market. After two weeks of buying, FPIs became net sellers with a withdrawal of Rs 976 crore. This shift can be attributed to the strengthening US dollar and a steady rise in US 10-year bond yields, which has impacted investor sentiment.
The week started off on a positive note for FPIs, with a total investment of Rs 3,126 crore in equities during the first two trading sessions. However, the trend took a downward turn in the latter half of the week, with FPIs selling equities worth over Rs 4,102 crore in the remaining three sessions. This resulted in an overall outflow of Rs 976 crore for the week, according to data from the National Securities Depository Limited.
Although there was a short-term reversal in the trend, the overall trend for the month of December remains positive. FPIs have invested Rs 21,789 crore in Indian equities so far this month, indicating their continued confidence in the country's economic growth potential and its resilient markets.
Himanshu Srivastava, Associate Director of Manager Research at Morningstar Investment Research India, stated that FPIs took a cautious approach due to the US Federal Reserve meeting and the uncertainty surrounding its outcome and future policy direction. Despite the Fed cutting interest rates by 25 basis points for the third time this year, their indication of fewer rate cuts in the future has dampened investor sentiment and caused a sell-off in global markets.
Moreover, factors such as high valuations, weak corporate earnings for the September quarter, expectations of subdued results for December, rising inflation, slower GDP growth, and a depreciating rupee have further contributed to the decline in investor confidence.
VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, attributed the FPI selling to the rise of the US dollar and a steady increase in US 10-year bond yields, which have reached 4.5 percent. He also mentioned that specific issues in India, such as concerns about slowing growth and flat corporate earnings in the second quarter, have added to the FPIs' decision to sell. With the strength of the US economy, good corporate earnings growth, and a strong dollar, the US has become a more favorable option for investment.
The recent FPI selling has led to a decrease in the prices of certain large-cap segments, particularly in the banking sector, making valuations more attractive. This presents an opportunity for investors to take advantage of the market downturn and invest in quality large-cap companies. Sectors like pharmaceuticals, information technology, and digital platform companies are expected to remain resilient and defy the downtrend.
In the previous month, FPIs withdrew a net amount of Rs 21,612 crore, and in October, the outflow was a whopping Rs 94,017 crore, marking the worst monthly outflow on record. Interestingly, September saw a nine-month high for FPI inflows, with a net investment of Rs 57,724 crore, highlighting the volatility in foreign investment trends. As per data from the depositories, FPI investment has reached Rs 6,770 crore so far in 2024.
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