Foreign portfolio investors (FPIs) have shifted from being net buyers to net sellers in Indian markets as their buying momentum decreased at the beginning of the new fiscal year 2024-25 (FY25). This shift comes after they reported significant inflows in the previous fiscal year. However, experts are uncertain about the continuity of these inflows due to the likelihood of elevated US bond yields and a sharp increase in US core inflation.
According to data from the National Securities Depository Ltd (NSDL), FPIs have sold Indian equities worth ₹6,304 crore, resulting in a total outflow of ₹13,144 crore as of April 26, considering debt, hybrid, debt-VRR, and equities. The total debt outflows for this month amount to ₹10,640 crore.
Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted, “In April until the 26th, FPI equity selling amounted to ₹6,304 crore. In the cash market during this period, equity selling reached ₹20,525 crore. There is also a trend of renewed selling in the debt market.”
The primary reason for this renewed selling by FPIs in both equity and debt markets is the continuous increase in US bond yields. The 10-year bond yield currently stands at around 4.7%, which is appealing to foreign investors. Additionally, the latest core CPI inflation in the US rose to 3.7%, exceeding expectations of 3.4%. This indicates that the likelihood of early rate cuts by the Federal Reserve is diminishing. Dr. V K Vijayakumar stated that high yields will lead to more FPI outflows in both equity and debt markets. However, the positive news is that FPI selling in the equity markets is being absorbed by DIIs, HNIs, and retail investors, which could potentially limit the FPI selling trend.
In March 2024, FPIs invested ₹35,098 crore in Indian equities, marking the highest inflows in the first three months of the year. Despite high US bond yields, FPI outflows decreased in February, with a net buying position by the end of the month. In February, there was an inflow of ₹1,539 crore into Indian equities, while debt market investments rose to ₹22,419 crore on top of the ₹19,836 crore bought in January.
The inclusion of government bonds into JPMorgan and Bloomberg debt indices attracted foreign fund inflows into the debt markets. After a selling streak in November 2023, FPIs turned into massive sellers in January 2024. However, the inflow intensified in December due to strong global cues, leading to foreign fund inflows into emerging markets like India.
Throughout 2023, FPIs bought ₹1.71 lakh crore in Indian equities and a total inflow of ₹2.37 lakh crore across debt, hybrid, debt-VRR, and equities. FPIs’ net investment in the Indian debt market was ₹68,663 crore in 2023. Only four months in 2023 saw net FPI outflows from Indian equities, while May, June, and July recorded FPI inflows above ₹43,800 crore.
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