FPIs withdraw Rs 28,200 cr from Indian equities on poll jitters, attractive Chinese mkt valuations

PTI

May 19, 2024 / 01:24 PM IST

The main reasons cited for FPIs selling include uncertainty about the general elections and high market valuations.

Foreign investors have withdrawn a massive Rs 28,200 crore from Indian equities so far this month, citing uncertainties about the outcome of the general elections and attractive valuations of Chinese markets. This withdrawal surpasses the net pullout of over Rs 8,700 crore in April, attributed to concerns over a tweak in India's tax treaty with Mauritius and a sustained rise in US bond yields.

Before this, FPIs made a net investment of Rs 35,098 crore in March and Rs 1,539 crore in February. Moving forward, there is expected to be a significant change in FPIs' equity flows in response to election results. Political stability could attract significant inflows into the Indian market, according to VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Following the Lok Sabha elections, FPI inflows into India could strengthen due to potential easing of interest rates by the US Federal Reserve, positive resolutions in global geopolitical tensions, and India's increasing weight in the MSCI Emerging Markets Index, projected to exceed 20 per cent by mid-2024, as noted by Karthick Jonagadla, Manager and founder of Quantace Research.

According to data from depositories, foreign portfolio investors experienced a net outflow of Rs 28,242 crore in equities this month (till May 17). The main reasons cited for FPIs selling include uncertainty about the general elections and high market valuations.

Moreover, FPIs are reallocating funds to China and Hong Kong, which offer cheaper valuations compared to Indian stocks, as highlighted by Anirudh Naha, CIO-Alternatives of PGIM India Asset Management.

Vijayakumar attributes the main trigger for FPI selling to the outperformance of the Hang Seng index in Hong Kong, which surged by 19.33 per cent during the last month.

Further, FPIs' withdrawal could be attributed to ongoing geopolitical crises in the Middle East, relative valuation discomfort, and the strength of US bond yields, according to Vipul Bhowar, Director of Listed Investments at Waterfield Advisors.

On the other hand, FPIs invested Rs 178 crore in the debt market during the period under review. Bharat Dhawan, Managing Partner of Mazars in India, notes that economic challenges and geopolitical tensions have made investors cautious.

Before this recent outflow, foreign investors put in Rs 13,602 crore in March, Rs 22,419 crore in February, and Rs 19,836 crore in January, driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index. Overall, FPIs withdrew a net amount of Rs 26,000 crore in equities in 2024 so far, while investing Rs 45,000 crore in the debt market.

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