overview:
Discover why FPIs have infused ₹2,053 crore in Indian equities, breaking the January selling streak. Explore the factors influencing this positive trend and insights into future investment possibilities.
Introduction
Foreign Portfolio Investors (FPIs) have made a significant impact on the Indian equity market by infusing ₹2,053 crore, marking a turnaround from the selling streak in January. This article delves into the reasons behind this positive trend, the global cues influencing FPI decisions, and the outlook for future investments.
FPIs’ Positive Start in February
February witnessed a positive start for FPIs, snapping the selling streak observed in January. The investments surged in December 2023 after FPIs reversed their three-month selling streak in November. As of February 2, the data from the National Securities Depository Ltd (NSDL) reveals that FPIs have sold ₹2,053 crore worth of Indian equities, with the total outflow standing at ₹7,099 crore, considering debt, hybrid, debt-VRR, and equities.
Global Cues Driving FPI Decisions
Foreign Institutional Investors (FIIs) and domestic institutional investors also played a crucial role in shaping market dynamics. FIIs were net buyers for three out of five sessions last week, with a total divestment of ₹2,008.68 crore. In contrast, domestic institutional investors were buyers for all sessions, making a significant investment of ₹10,102.62 crore, according to stock exchange data.
Insights from Dr. V K Vijayakumar
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, attributes the positive trend to improved global cues. He highlights the favorable trends in the US economy, emphasizing that the US is heading for a soft landing with anticipated rate cuts. Dr. Vijayakumar notes that corrections in the dollar index and the US 10-year falling to 3.88% may restrain FIIs from selling.
Understanding FPIs’ January Selling Streak
FPIs turned net sellers in January, a reversal from their buying streak, influenced by global cues. The rise in US bond yields from 3.9% to 4.18% triggered capital outflows from emerging markets like India. Divergent trends were observed in equity and debt flows in January, with equity witnessing net selling of ₹25,734 crore, while debt saw net buying of ₹19,836 crores (NSDL).
Dr. V K Vijayakumar’s Analysis
Dr. V K Vijayakumar outlines three primary reasons for FPIs’ January trend. Firstly, the increase in US bond yields prompted outflows from equity to high-yielding US bonds. Secondly, Indian equity became the most expensive globally, with Nifty trading at a PE of around 21 based on FY24 estimated earnings, triggering equity selling in India. Thirdly, some FPIs engaged in front running in the Indian bond market, anticipating flows after India’s inclusion in the JP Morgan Emerging Market Bond Fund.
Will February see more FPI inflows?
Future FPI inflows into the equities market will be influenced by changes in both the global and Indian equity markets, as well as changes in the yields on US bonds. Given the recent strong correction in US bond yields, it seems unlikely that FPIs will sell in significant quantities in February. They might even become customers. The debt market is expected to continue receiving inflows, according to Dr. V K Vijayakumar of Geojit.
Due to the downturn in the economies of developing nations brought on by high interest rates, core inflation, and above-average valuation, international investors are currently avoiding risk. According to industry experts, India is currently experiencing a rippling effect, and this mood is anticipated to last through H1CY24.
They noted that there is a good chance that the mood will improve during H2. The degree of improvisation will vary depending on how much the interest rate, inflation, budget, and high frequency economic data decrease.
FPI activity in marketplaces located in India
After the US Federal Reserve signaled the conclusion of its tightening cycle and heightened expectations of a rate cut in March 2024, the inflow picked up steam in December on strong global indications. Due to this, US bond yields fell precipitously, and international capital began pouring into developing nations like India.
According to NSDL data, FPIs purchased ₹1.71 lakh crore in Indian shares for the full calendar year 2023. When debt, hybrid, debt-VRR, and equities are taken into account, the overall inflow is ₹2.37 lakh crore. In the Indian debt market in 2023, FPIs have invested a net total of ₹68,663 crore.
According to NSDL data, FPI inflows into Indian equities in November 2023 totaled ₹9,001 crore, whereas shares sold in September and October totaled nearly ₹39,000 crore. FPI inflows during the month totaled ₹24,546 crore when debt, hybrid, debt-VRR, and equity were taken into consideration.
Just four months in 2023—January, February, September, and October—saw net foreign portfolio withdrawals from Indian stocks overall. Each of the months of May, June, and July saw FPI inflows above ₹43,800 crore.
FAQs (Frequently Asked Questions)
Q: What drove FPIs to turn net sellers in January? FPIs turned net sellers in January due to the rise in US bond yields, triggering capital outflows from emerging markets like India.
Q: Were there divergent trends in equity and debt flows in January? Yes, equity witnessed net selling of ₹25,734 crore, while debt saw net buying of ₹19,836 crores (NSDL) in January.
Q: Why did Indian equity become the most expensive in the world? Indian equity became the most expensive globally due to Nifty trading at a PE of around 21 based on FY24 estimated earnings.
Q: What influenced the positive start for FPIs in February? Global cues, especially the favorable trends in the US economy, influenced FPIs’ positive start in February.
Q: How did FIIs and domestic institutional investors contribute to market dynamics? FIIs were net buyers, with a total divestment of ₹2,008.68 crore, while domestic institutional investors made a significant investment of ₹10,102.62 crore.
Q: What factors restrained FIIs from selling in February? Correction in the dollar index to 103 and the US 10-year falling to 3.88 per cent restrained FIIs from selling in February.
Conclusion
The infusion of ₹2,053 crore by FPIs in Indian
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