FPIs had already withdrew Rs 12,000 crore from stocks in October and invested Rs 5,700 crore in debt

Foreign portfolio investors (FPIs) have pulled out more than Rs 12,000 crore from Indian stocks so far this month, mostly as a consequence of a persistent increase in US bond rates and the tumultuous economic climate brought on by the Israel-Hamas war.

The narrative, however, takes a fascinating turn when we look at FPI activity in Indian debt since, according to statistics from the depositories, throughout the review period, they invested more than Rs 5,700 crore in the debt market.

According to Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Adviser India, the future trajectory of FPIs’ investments in India will be impacted by both the evolution and intensity of the Israel-Hamas conflict as well as by global inflation and interest rate dynamics.

He noted that because of the tendency for geopolitical conflicts to raise risk, foreign capital inflows into developing nations like India often suffer.

Foreign portfolio investors (FPIs) sold shares worth Rs 12,146 crore last month (as of October 20), according to data with the depositories.

After turning into net sellers in September and withdrawing Rs 14,767 crore, this happened.

Prior to the outflow, FPIs continuously purchased Indian stocks throughout the previous six months, from March to August, and did so at a cost of Rs. 1.74 lakh crore.

The most recent outflow seems to be a reaction to the present uncertainty facing the world. According to Mayank Mehraa, smallcase manager and principle partner at Craving Alpha, geopolitical events, notably the crises in Israel and Ukraine, have thrown a shadow of volatility over global markets, causing FPIs to take a cautious approach in the Indian equities market.

The steep increase in US bond rates, which sent the 10-year yield to a 17-year high of 5% on October 19, was the main cause of the ongoing selling, according to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Experts predict that under the present situation, safe-haven assets like gold and the US dollar may get more attention.

Explaining the causes of the inflow of Rs 5,700 crore into the debt market, Vijayakumar said this could be attributed to a number of factors, including FPIs diversifying their investment in the face of uncertainty and weakness in the global economy, Indian bonds are offering good yields, and the rupee is expected to be stable given India’s stable macroeconomic conditions.

India’s participation in the JP Morgan Global Bond Index is another aspect, he said.

This may be a plan to wait patiently for more stable circumstances or possible declines before entering the equities market again. In summary, this dual strategy used by FPIs emphasizes the complex dance they engage in in reaction to world events, according to Mehraa.

Their eagerness to switch their attention from one asset class to another highlights how flexible investing strategies are in the face of shifting conditions, he said.

With this, FPIs have invested a total of Rs. 1.08 lakh crore in the equities market and around Rs. 35,000 crore in the debt market so far this year.

FPIs have been selling across the board in industries including finance, electricity, FMCG, and IT, while buying in the capital goods and auto industries has been muted. However, they were telecom purchasers.