In January, there was a significant change in the Indian financial situation as Foreign Portfolio Investors (FPIs) went from being buyers to becoming net sellers, selling off Rs.24,734 crore worth of equities. This article examines the factors that contribute to this surprising market behavior and investigates the dynamics involved.
Investigating FPIs Activity in January FPIs’ Favorable Beginning in 2024:
Unexpectedly, Foreign Portfolio Investors (FPIs) started the year 2024 on a positive note, as their investments saw a significant increase in December 2023. This was followed by a change in the three-month trend of selling in November 2023, which created a positive atmosphere for the upcoming year.
Analysis of Rs.24,734 Crore Outflow: As of January 25, Foreign Portfolio Investors (FPIs) disposed of Rs.24,734 crore worth of Indian equities, leading to a net outflow of Rs.9,663 crore. This calculation includes loans, mixed, mixed-variable-rate-reduction, and stocks, according to data from the National Securities Depository Ltd (NSDL).
Insights from Dr. V K Vijayakumar:
Dr. V K Vijayakumar, the Chief Investment Strategist at Geojit Financial Services, provided insight into the situation by mentioning that FPIs continued to sell in the cash market. They sold their investments in automobiles, automobile parts, media, and entertainment to some extent in information technology, while acquiring assets in the oil and gas industry, power sector, and selectively in financial services.
Comparison between Foreign Institutional Investors and Domestic Investors
Foreign Institutional Investors and Domestic Institutional Investors:
Over the past week, Foreign Institutional Investors (FIIs) were net sellers, divesting Rs.12,194.38 crore. On the other hand, domestic institutional investors made purchases in all sessions, amounting to Rs. 9,701.46 crore. Analysts observed that the plan of foreign portfolio investors (FPIs) to decrease the market value encountered opposition from local and personal investors.
Factors Influencing the Change on a Global Scale:
The shift for FPIs happened because of international signals, specifically the increase in US bond yields from 3.9% to 4.18%. Market experts explained that this led to the outflow of capital from emerging markets, including India.
Worries About Increasing US Bond Yields: The worry arises from the increasing bond yields in the US, leading to the recent selling activity in the cash market. The surge in international stock markets, driven by the change in stance by the Federal Reserve, resulted in a decrease in the 10-year bond yield from five percent to approximately 3.8 percent. Nevertheless, it has now risen to 4.18 percent, suggesting that the possibility of a Fed rate cut may only happen in the latter part of 2024.
FPIs’ IT Stock Purchasing Spree: In spite of the market decline, FPIs have displayed interest in IT stocks this month. Experts credit this change to positive statements made by management after the Q3 results, suggesting a recovery in demand for the IT industry.
Activity of the FPI in Indian markets
The influx increased last month due to strong global signals following the US Federal Reserve’s indication of the conclusion of its tightening cycle and the anticipation of a rate reduction in March 2024. This resulted in a decline in US bond yields and prompted foreign capital inflows into emerging markets such as India.
In December, foreign portfolio investors (FPIs) made significant purchases in the financial services sector as well as the information technology (IT) sector. FPIs also purchased in sectors such as automobiles, industrial goods, energy, and telecommunications, as stated by Dr. V K Vijayakumar.
In 2023, foreign portfolio investors (FPIs) purchased Rs.1.71 lakh crore worth of Indian equities. The overall inflow, including debt, hybrid, debt-VRR, and equities, amounts to Rs.2.37 lakh crore, as per NSDL data. Foreign portfolio investors’ net investment in the Indian debt market amounts to Rs.68,663 crore in 2023.
Funds coming into Indian stocks in November 2023 amounted to Rs.9,001 crore, in contrast to the sale of shares worth over Rs.39,000 crore in September and October combined, as per NSDL data. Considering the amount of debt, hybrid, debt-VRR, and equities, FPI inflows amounted to Rs.24,546 crore during the month.
In total, only four months in 2023 – January, February, September, and October – experienced net FPI outflows from Indian equities. May, June, and July each saw FPI inflows exceeding Rs.43,800 crore.
Commonly Asked Questions
Q: What caused FPIs to become net sellers in January?
A: International signals, specifically the increase in US bond yields, caused the movement of capital out of developing economies such as India, resulting in foreign portfolio investors (FPIs) becoming net sellers.
Q: What was the amount of sales made by FPIs in the cash market until January 25?
A: Foreign portfolio investors (FPIs) have sold equity worth Rs.27,664 crores until January 25. They have divested in sectors such as automobiles, auto ancillary, media, entertainment, and made marginal sales in the IT sector.
Q: Did the FPI approach of lowering the market succeed?
A: Market analysts propose that the FPI approach encountered opposition, as local and individual investors countered their selling with buying.
Q: Which sectors did FPIs invest in during their selling spree?
A: Foreign portfolio investors purchased stocks in the oil and gas, power, and financial services sectors while also engaging in selling activities.
Q: What was the reason for FPIs displaying interest in IT stocks despite the market downturn?
A: The positive outlook for increased demand in the IT industry, as indicated by the comments made by management after the Q3 results, encouraged foreign portfolio investors to invest in IT stocks.
Q: What is the forecast for the Federal Reserve’s interest rate reduction in 2024?
A: The increase in the 10-year US bond yield to 4.18 percent suggests that the Federal Reserve is likely to lower interest rates only in the second half of 2024.
Conclusion: The change in FPI behavior, shifting from being buyers to net sellers in January, reflects the complex interaction of global economic signals and market dynamics. Investors are recommended to remain alert and take into account the wider context when navigating the constantly changing financial environment.
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