In September, FPI outflow in equities exceeded Rs 10,000 billion due to rising US interest rates

In the first three weeks of September, Foreign Portfolio Investors (FPIs) withdrew more than Rs 10,000 crore from Indian equities, mostly as a result of increasing US interest rates, recessionary worries, and overpriced local stocks.

Prior to the outflow, FPIs continuously purchased Indian stocks from March through August during the previous six months, bringing in a total of Rs 1.74 lakh billion.

Strong economic growth forecasts, alluring values, and governmental changes, according to Craving Alpha management and senior partner Mayank Mehra, might encourage foreign investment flows in the next month.

“FPIs are likely to push sales so long as this trend remains,” said V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services. “Valuations remain high even after the recent downturn and US government rates are appealing (the US 10-year bond yield is about 4.49%).

Data from depositories show that FPIs sold securities in 11 out of the 15 trading days so far in September, for a net outflow of Rs. 10,164 crore.

This sum covers investments made via the main market as well as large transactions.

Over Rs 4,700 crore of the Rs 10,164 crore total withdrawal this month (until September 22) were made in the previous week alone.

The most recent outflow followed a four-month low in FPI equity investment of Rs 12,262 crore in August.

The preceding several weeks have seen a muted trend in FPI flows. According to Himanshu Srivastava, Associate Director – Manager Research at Morningstar India, this reluctance among investors might be ascribed to rising concerns about inflation and the interest rate environment, notably in the US, as well as uncertainty over global economic development.

Investors have thus become cautious and adopted a “wait and watch” strategy when thinking about making investments in developing areas like India, he said.

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

On the other hand, during the time period under consideration, FPIs made Rs 295 crore in investments in the nation’s debt market.

With this, FPIs have invested a total of Rs 1.25 lakh crore in the equities market and around Rs 28,476 crore in the debt market so far this year.

According to sectoral statistics, as of September 15, the industries with the biggest outflows were mining, power, services, oil, and communications, whereas industries like financial services, capital foods, consumer services, IT, and real estate drew cumulative purchasing.