FPIs Withdraw ₹64,000 Cr from Indian Equities in January
Foreign Portfolio Investors (FPIs) continue to pull out funds from the Indian equity markets, withdrawing a staggering ₹64,156 crore (USD 7.44 billion) this month so far. This exodus is driven by a combination of factors, including the depreciation of the Indian rupee, rising US bond yields, and expectations of a tepid earnings season. This significant outflow follows an investment of ₹15,446 crore in December.
The change in investor sentiment is occurring amidst a backdrop of both global and domestic economic challenges.
Factors Contributing to FPI Outflows
Several factors are contributing to the continued selling by FPIs:
- Rupee Depreciation: The weakening Indian rupee is putting pressure on foreign investors, prompting them to withdraw funds from Indian equities.
- High Valuations: Despite recent corrections, Indian equities are still considered highly valued, making investors wary.
- Tepid Earnings Season: Expectations of a weak earnings season are dampening investor enthusiasm.
- Macroeconomic Headwinds: Ongoing macroeconomic uncertainties are adding to the cautious sentiment.
- Uncertainty Around US Policies: The unpredictable nature of potential future US policies is also causing investors to avoid riskier investment avenues.
Impact on Markets
Data reveals that FPIs have offloaded shares worth ₹64,156 crore from Indian equities this month up to January 24. This selling pressure has been consistent throughout the month, with only one day of net buying on January 2.
According to V.K. Vijayakumar, Chief Investment Strategist at Geojit Financial Services, the strengthening dollar and rising US bond yields are the primary drivers of FII selling. He notes that as long as the dollar index remains above 108 and the 10-year US bond yield stays above 4.5%, the selling is likely to continue.
Sectoral Trends
The financial sector has been particularly affected by FPI selling, as a large portion of their assets under management is concentrated in this sector. On the other hand, the IT sector has seen some buying due to improved prospects and positive management commentary.
Debt Market Outflows
FPIs have also been sellers in the debt market, withdrawing ₹4,399 crore from debt general limits and ₹5,124 crore from debt voluntary retention routes, as US bond yields remain attractive.
Overall Trend
The overall trend indicates a cautious approach by foreign investors, who significantly reduced their investments in Indian equities in 2024, with net inflows of only ₹427 crore. This contrasts sharply with the substantial net inflows of ₹1.71 lakh crore in 2023, which were driven by optimism about India's strong economic fundamentals.
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