FPIs pullout ₹10,000 crore in September on rising US interest rates

Foreign Portfolio Investors (FPIs), which have been on a buying spree in India since the current financial year started, look to be shifting their sights to US bonds. In the first three weeks of September, they've pulled out ₹10,000 crore from Indian equities. Market pundits say that the hawkish Fed commentary in addition to revival in recession fears as well as highly-priced Indian stocks are the prime reason why they are homeward bound.

FPIs have been incessantly buying Indian equities in the last six months from March to August --- and brought in ₹1.74 lakh crore during the period.

High valuations

"Since valuations remain high even after the recent pullback and US bond yields are attractive (the US 10-year bond yield is around 4.49 per cent) FPIs are likely to press sales so long as this trend persists," V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.

According to Vijayakumar, even after the recent correction, Nifty is trading around 20 times FY 24 earnings, making India the most expensive market in the world. "No doubt, India has the best growth and earnings prospects among the large economies of the world. So, if the markets correct further, by say 3-4% , FIIs can turn buyers even if US bond yields remain high," he added.

Mayank Mehra, manager and principal partner at Craving Alpha, believes that strong economic growth prospects, attractive valuations, and government reforms could support foreign investment flows in the next month.

According to the data with depositories, in the 15 trading days, so far in September, FPIs were sellers in 11 days with a net withdrawal of ₹10,164 crore.

This figure includes bulk deals and investments through the primary market.

Of the total pullout of ₹ 10,164 crore so far this month (till September 22), over ₹ 4,700 crore was withdrawn in the last week alone.

The latest outflow came after FPI investment in equities hit a four-month low of ₹12,262 crore in August.

FPI flows have displayed a subdued pattern over the past few weeks. This hesitancy among investors can be attributed to growing apprehensions about inflation and the interest rate landscape, particularly in the US, coupled with uncertainties regarding global economic growth, Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, said.

As a result, investors have turned cautious and adopted a "wait and watch" approach when considering investments in emerging markets like India, he added.

"Higher oil prices and elevated US yields are keeping the FPIs on the defensive, however, we infer that stable economic growth in India vis-a-vis China and other emerging markets (EMs) will draw FPIs back to the Indian equities," Hitesh Jain, Strategist Institutional Equities Research at YES Securities India said.

On the other hand, FPIs invested ₹295 crore in the country's debt market during the period under review.

With this, the total investment by FPIs in equity has reached ₹1.25 lakh crore and close to ₹28,476 crore in the debt market this year so far.

The sectoral data revealed that as of September 15, mining, power, services, oil, and telecommunication registered the highest outflows, and sectors such as financial services, capital goods, consumer services, IT, and realty attracted cumulative buying.

(With PTI inputs)