Indian Markets See Heavy Selling From FPIs Worth Rs.17,000 Cr

Foreign Portfolio Investors (FPIs) have been actively selling Indian equities in May, with over Rs.17,000 crore worth of shares offloaded. Substantial selling by FPIs has also played a role in the decline of the benchmark stock market indices, Sensex and the Nifty 50, both of which dropped by 2.6% each this month.

Election Uncertainty’s Influence

The recent market trends have been significantly impacted by the uncertainty surrounding the general election. Foreign Portfolio Investors (FPIs) have responded to this uncertainty by adjusting their investment strategies, contributing to notable fluctuations in market activity.

Reasons for FPI Activity

In contrast to April, when there was a net withdrawal driven by concerns over changes in India’s tax treaty with Mauritius and increasing US bond yields, May witnessed heightened FPI activity. Additionally, the robust performance of Chinese and Hong Kong markets must have influenced the activity as over the past month, China’s Shanghai Composite has gained 3.96%, while the Hang Seng index in Hong Kong has surged by 10.93%.

Profit-Taking in High Valuation Context

This activity included substantial selling, possibly influenced by both election uncertainty and profit booking amid high market valuations. The relatively high valuations of the Indian markets could have prompted foreign investors to seize the opportunity to book profits and adopt a wait-and-see approach until there’s greater clarity regarding the elections.

JP Morgan Index Inclusion Prospects

Data from the National Securities Depository Ltd (NSDL) indicates that FPIs, prior to the recent outflow, injected Rs. 13,602 crore in March, Rs. 22,419 crore in February, and Rs. 19,836 crore in January. This was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index. Expected in June 2024, the move is anticipated to attract around USD 20-40 billion over the following 18 to 24 months, benefiting India significantly. In 2024 thus far, FPIs have withdrawn a net sum of Rs. 14,860 crore from equities, while concurrently investing Rs. 14,307 crore in the debt market.

Conclusion: In conclusion, FPIs have exhibited significant activity in Indian markets, with substantial selling in May, influenced by election uncertainty and high valuations. Despite this, earlier inflows driven by the impending inclusion of Indian government bonds in the JP Morgan Index signal optimism for future investment prospects. Overall, FPIs have adopted a more cautious approach, favouring lower-risk strategies.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.