Foreign investors withdraw ₹17,000 crore from Indian equities: Here's why
Foreign investors have pulled out a substantial ₹17,000 crore from Indian equities in the first ten days of May. This withdrawal is attributed to the elections and the uncertainty surrounding its outcome. The figure surpasses the net withdrawal of ₹8,700 crore in April, which was influenced by concerns over changes in India's tax treaty with Mauritius, and a sustained rise in US bond yields.
FPIs' investment trends amid elections
Prior to the recent withdrawal, Foreign Portfolio Investors (FPIs) had made a net investment of ₹35,098 crore in March, and ₹1,539 crore in February. However, depository data reveals a net outflow of ₹17,083 crore in equities until May 10. Himanshu Srivastava from Morningstar Investment Research India, explains this shift stating that investors are wary to enter the markets before the election results.
High valuations and political uncertainty
High valuations of Indian markets have led many investors to book profits, and wait for more clarity on India's political landscape. A senior research analyst at Capitalmind, noted that given the political uncertainty in India, and with US interest rates still appealing, FPIs have shifted to a risk-off mode. This aggressive selling by FPIs could also be due to profit booking in anticipation of a market correction around election results day.
Global factors and domestic market response
The US Federal Reserve's decision not to cut rates until inflation cools, has led to an appreciation in the US Dollar and a surge in US Treasury yields. FPIs also withdrew ₹1,602 crore from the Indian debt market during this period. Despite these outflows, domestic institutional investors (DIIs) have been consistent buyers, with a cumulative DII buying of ₹19,410 crore. VK Vijayakumar from Geojit Financial Services, noted that FPIs have turned sustained sellers and DIIs have turned sustained buyers.
