FPI trends in Indian equities: Unravelling the January sell-off

January 2024 witnessed a significant shift in Foreign Portfolio Investors’ (FPIs) behaviour in Indian equities, marking a departure from the positive momentum seen in December 2023. This article examines the details of this trend reversal, the driving factors, and its implications on the Indian market.

FPIs in December 2023 

A Positive Start Starting the year on a positive note, FPIs showcased renewed interest in Indian markets in December 2023, with a substantial uptick in investments following a three-month selling streak. The total inflow during this period raised expectations for a continued bullish trend. However, January brought about a stark contrast.

January Sell-Off 

Figures and Sectors In a surprising turn, FPIs turned massive sellers in January, offloading Rs 24,734 crore worth of Indian equities. The total outflow, considering debt, hybrid, debt-VRR, and equities, reached Rs 9,663 crore by January 25, as reported by the National Securities Depository Ltd (NSDL). Notably, FPIs continued to be sellers in various sectors, including autos, auto ancillary, and media and entertainment, while showing marginal interest in IT and selectively in financial services.

Institutional Dynamics 

FIIs and Domestic Investors Foreign institutional investors (FIIs) also adopted a selling stance in January, divesting Rs 12,194.38 crore for the week. In contrast, domestic institutional investors (DIIs) bought for three out of six sessions, injecting Rs 9,701.46 crore into the market. The clash between FPI selling and domestic investor buying signals an interesting market dynamic, with domestic and individual investors countering the FPI strategy to push the market down.

Understanding the Turnaround 

Global Cues and US Bond Yields The shift in FPI behaviour can be attributed to global cues, particularly the rise in US bond yields from 3.9% to 4.18%. This surge triggered capital outflows from emerging markets, including India. The concern revolves around the rising US bond yields, suggesting a potential delay in the anticipated Fed rate cut, now expected in the second half of 2024. The market’s response indicates sensitivity to global economic indicators and their impact on capital flows.

FPI Sectoral Preferences 

IT Stocks Shine Despite the overall sell-off, FPIs demonstrated a preference for IT stocks in January. The optimism stemmed from positive management commentary following the Q3 results, indicating a potential revival in demand for the sector. This selective buying suggests that FPIs are responsive to sector-specific indicators and performance.

FPI Inflows in 2023 

A Year in Review Reflecting on 2023, FPIs exhibited a robust investment trend, buying Rs 1.71 lakh crore in Indian equities for the entire year. The total inflow, considering debt, hybrid, debt-VRR, and equities, reached Rs 2.37 lakh crore. Notably, FPIs had a net investment of Rs 68,663 crore in the Indian debt market during 2023. December 2023 marked a notable turnaround, with FPIs turning buyers in sectors like financial services, IT, autos, capital goods, oil and gas, and telecom.

Conclusion 

In summary, the January shift in FPI activity, marked by a massive sell-off, reflects the impact of global cues and, more specifically, the rise in US bond yields. The clash between FPI selling and domestic investor buying highlights the evolving dynamics of Indian markets. While FPIs remain sensitive to global economic indicators, their sector-specific preferences, such as the focus on IT stocks, indicate a nuanced approach. The resilience of domestic and individual investors in countering the FPI strategy underscores the complex interplay of factors shaping India’s financial landscape in 2024.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.