FPIs withdraw ₹7,300cr from Indian equities amid global trade tensions
What's the story
Foreign Portfolio Investors (FPIs) continued their exodus from the Indian equity market, withdrawing over ₹7,300 crore in the first week of February.
The move comes amid rising global trade tensions, especially after the US imposed tariffs on countries like Canada, Mexico and China.
The data shows this trend comes after an outflow of ₹78,027 crore in January, following an investment of ₹15,446 crore in December.
Market dynamics
Trade tensions and INR depreciation trigger FPI withdrawal
Himanshu Srivastava from Morningstar Investment Research India, has flagged global trade tensions as the main reason behind the FPI outflow.
The uncertainty over the tensions has created a risk-averse sentiment among global investors, resulting in capital flight from emerging markets like India.
Further, the Indian Rupee's sharp depreciation, breaching 87 per US Dollar for the first time, has exacerbated the trend by eroding returns for foreign investors and making Indian assets less attractive.
Investor sentiment
Dollar strength and high US bond yields influence FPI behavior
V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, emphasized the strong Dollar index and high US bond yields as factors that prompted FPIs to sell.
He proposed that a softening trend in these indicators could reduce FPI selling.
Vijayakumar also predicted an improvement in Indian market sentiment due to recent budget announcements and rate cuts by the Reserve Bank of India (RBI).
Future outlook
Political developments and GDP growth to impact market trends
Vijayakumar also said BJP's win in the Delhi elections could boost the market in the short term.
However, he stressed long-term market trends will depend on recovery in GDP growth, earnings, etc.
Manoj Purohit from BDO India, expressed confidence in India's resilience amidst these volatile market events, saying, "the government is taking all rightful measures to make it ready to face global economic challenges."
Investment shift
FPIs show interest in debt market
Despite exit from equities, FPIs have shown interest in debt market, investing ₹1,215 crore into the debt general limit and ₹277 crore in the debt voluntary retention route.
This shift highlights a cautious approach by foreign investors who had drastically cut back on their investments in Indian equities in 2024.
The net inflows for the year stood at ₹427 crore, a stark contrast to the massive inflows of ₹1.71 lakh crore in 2023 on optimism over India's strong economic fundamentals.