Foreign investors adopted a cautious stance in January, selling off Indian equities worth Rs 13,000 crore in the first three weeks due to high valuations and rising US bond yields. However, foreign investors have shown confidence in the debt market, injecting Rs 15,647 crore during the same period.
Data from depositories reveals that foreign portfolio investors (FPIs) made a net investment of Rs 13,047 crore in Indian equities in January up to January 19. They pulled out over Rs 24,000 crore from equities during January 17-19. In the preceding months, FPIs made a net investment of Rs 66,134 crore in December and Rs 9,000 crore in November.
Two main reasons have been identified for FPIs turning sellers. Firstly, the rise in US bond yields, with the 10-year yield increasing from 3.9 per cent to 4.15 per cent, triggered capital outflows from emerging markets. Secondly, high valuations in India, combined with less-than-expected results from HDFC Bank, prompted significant selling.
The extensive selling may also be attributed to FPIs offloading their stake in HDFC Bank following disappointing quarterly results, according to analysts.
FPIs entered the new year with a cautious approach, booking profits in the Indian equity markets as key stock indices reached all-time high levels. Uncertainty over the interest rate scenario further contributed to FPIs staying on the sidelines and waiting for clearer signals before deciding to invest in emerging markets like India.
On the positive side, FPIs have shown a bullish stance on debt markets, with expectations of rate cuts in India leading to increased interest in long-term debt bonds. The net investment in the debt market was Rs 18,302 crore in December, Rs 14,860 crore in November, and Rs 6,381 crore in October.
In terms of sectors, FPIs have been buying IT stocks in January, influenced by optimistic commentary from IT managers following Q3 results indicating a revival in demand for the sector.
Overall, total FPI flows for 2023 reached Rs 1.71 lakh crore in equities and Rs 68,663 crore in the debt markets, amounting to a total infusion of Rs 2.4 lakh crore into the capital market. This positive flow in Indian equities follows a worst net outflow of Rs 1.21 lakh crore in 2022 due to aggressive rate hikes by central banks globally. Before the outflow, FPIs had invested money in the last three years.
(With PTI inputs)
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