Foreign portfolio investors (FPIs) raised funds in these two months in anticipation of sustained economic growth, sustained reform measures, a better-than-expected earnings season and political stability.
25,586 crore in May and Rs 25,586 crore in April due to concerns over changes in India’s tax treaty with Mauritius and continued rise in US bond yields. 8,700 crore was withdrawn.
According to the data, FPIs have so far this month (August 1-17) drawn Rs. 21,201 crore net withdrawn.
So far this year, FPIs have invested Rs. 14,364 crore invested, data from depositories shows.
The FPI outflow observed in August was mainly driven by a combination of global and domestic factors.
Vipul Bhovar, Director, Listed Investments, Waterfield Advisors, said, “Globally, market volatility and risk aversion concerns from yen carry trade, possible global recession, slower economic growth and ongoing geopolitical conflicts.
The outflows were triggered by the closure of yen carry trades after the Bank of Japan raised interest rates to 0.25 percent.
Domestically, after being net buyers in June and July, some FPIs may have opted to book profits following a strong rally in the previous quarter.
Additionally, mixed quarterly earnings and relatively high valuations have made Indian equities less attractive, Bhovar added.
Himanshu Srivastava, associate director, manager research, Morningstar Investment Research India, said the post-Budget announcement of hike in capital gains tax on equity investments has largely fueled this sell-off.
Additionally, FPIs remain cautious due to higher valuations of Indian stocks, as well as fears of a slowdown amid global economic concerns such as weak jobs data in the US, uncertainty over the timing of interest rate cuts, and yen carry trade uncertainty. he added.
A notable recent trend in FPI inflows, which became evident in August, is the continued selling by them through the exchanges while continuing to invest through the ‘primary market and others’ category. This difference in FPI behavior is due to differences in valuation.
“Issues in the primary market are at comparatively low valuations, while in the secondary market, valuations continue to be high. Therefore, FPIs buy when securities are available at fair valuations and sell when valuations extend in the secondary market,” it said. VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services.
On the other hand, FPIs have invested Rs. 9,112 crore has been invested. This has taken the total to Rs 1 lakh crore in 2024.
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