Foreign Portfolio Investors (FPIs) have made a significant retreat from Indian equities in April, withdrawing a staggering sum of Rs 6,300 crore.
This abrupt reversal follows a robust net investment of Rs 35,098 crore in March and Rs 1,539 crore in February, as per data from the depositories.
Triggered by Rising US Bond Yields
The primary driver behind this exodus appears to be the sustained rise in US bond yields. Currently hovering around 4.7 percent, the attractiveness of these yields for foreign investors has prompted a shift away from Indian equities, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.
Tax Treaty Tweaks and Global Market Uncertainty
Additionally, concerns over tweaks in India’s tax treaty with Mauritius have further unsettled foreign investors.
Himanshu Srivastava, Associate Director at Morningstar Investment Research India, notes that weak global market cues, coupled with uncertainties surrounding macroeconomic factors and interest rates, have exacerbated the situation for emerging market equities.
Commodity Prices and US Fed's Stance
Surges in commodity prices, particularly oil, alongside higher US retail inflation, have dashed hopes of an early rate cut by the US Federal Reserve.
This, in turn, has triggered a surge in the US 10-year yield, prompting foreign investors to adopt a cautious "wait and watch" approach.
Offset by Domestic Institutional Investors
A silver lining amidst this foreign sell-off is the absorption of FPI selling in the equity markets by domestic institutional investors (DIIs), High Net Worth Individuals (HNIs), and retail investors.
This internal support may help mitigate the impact of FPI withdrawals to some extent.
Debt Market Withdrawals
In addition to equities, FPIs have also withdrawn a substantial Rs 10,640 crore from the debt market during the same period, further reflecting their cautious stance.
Inflow Trends and JP Morgan Index Inclusion
Before April’s outflow, FPIs had been steadily increasing their investments, with notable inflows recorded in March (Rs 13,602 crore), February (Rs 22,419 crore), and January (Rs 19,836 crore).
This trend was largely driven by the anticipation of the inclusion of Indian government bonds in the JP Morgan Index.
Yearly Inflow Standings
Despite the April setback, the total inflow for the year so far stands at Rs 4,590 crore in equities and Rs 45,218 crore in the debt market.
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