Going forward, FPIs’ flow is expected to remain volatile in the coming months due to ongoing geopolitical risk, elevated inflation, expectation of rising treasury yields, etc, Shrikant Chouhan, Head-Equity Research (Retail) at Kotak Securities, said.
“FPIs are unlikely to sell heavily in the near term. But they will turn sustained buyers only when the dollar starts declining. This, in turn, will depend on the trajectory of US inflation and the Fed’s monetary stance,” V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, said.
According to the data, FPIs withdrew Rs 5,992 crore from equities in October (till 21).
However, during the last few days FPIs had slowed down their selling substantially.
A major trend in the market is that sustained buying by domestic institutional investors (DIIs) and retail investors has been overwhelming FPI selling.
“If FPIs want to buy the stocks that they sold, they will have to pay a much higher price. This realisation is slowing down their selling even in the negative macro construct where US bond yields are rising and rupee is depreciating,” Vijayakumar said.
The withdrawal so far this month came following an outflow of over Rs 7,600 crore in September on hawkish stance by the US Federal Reserve and sharp depreciation in rupee.
Prior to this, FPIs made a net investment of Rs 51,200 crore in August and nearly Rs 5,000 crore in July. Before July, foreign investors were net sellers in Indian equities for nine months in a row which started in October last year.
The latest outflow by FPIs was largely driven by the concerns of the monetary policy tightening by the US Fed as well as other central banks globally, which could hamper global economic growth, Himanshu Srivastava, Associate Director – Manager Research, Morningstar India, said.
“More than any India specific risks, the flight to dollar in volatile markets is the primary theme that drives the latest outflow,” Kanika Agarrwal, Co-Founder, Upside AI, said.
The rupee sharply depreciated last week as it touched an all time low of Rs 83 against the dollar.
The flows from FPIs have been inconsistent over the last few months as they kept on changing their stance frequently tracking the fast-changing investment scenario.
The broader sentiment has been unconducive although there have been some intermittent breathers.
“Expectation of further and aggressive rate hikes by the US Fed, depreciating rupee, fears of a recession and continuation of conflict between Russia and Ukraine would continue to have a negative impact on foreign flows into Indian equities. This scenario has created an environment of uncertainty leading investors to turn risk averse,” Srivastava said.
In terms of sectors, FPIs have been sellers in financials, FMCG and IT in October.
In addition to equities, foreign investors have pulled out Rs 1,950 crore from the debt market during the period under review.
Apart from India, FPI flows were negative for Thailand and Taiwan so far this month.