FPIs sell off Rs 16K crore in stocks in three sessions as Middle East tensions rise
In the previous three trading days, Foreign Portfolio Investors (FPIs) have sold off stocks valued at over Rs 16,000 crore, amidst a significant decline in local markets due to mounting geopolitical tensions in the Middle East and dwindling expectations of an early rate reduction by the US Federal Reserve.
The BSE Sensex and NSE Nifty50, two local benchmark indexes, have dropped 2.7% each over the last three days. Proposed modifications to the tax treaty between Mauritius and India prompted foreign investors to sell stocks valued at a net of Rs 8,000 crore on Friday. Then, according to statistics from the National Stock Exchange (NSE), they sold shares worth Rs 3,200 crore on Monday and Rs 4,469 crore on Tuesday. Growing tensions between Israel and Iran and a dramatic increase in US bond rates are blamed for the sell-off that has occurred during the last two sessions.
In addition to selling equities in India, overseas investors have also seen decreasing stock prices in other developing economies. Instead, they believe that stable assets like gold and government-backed bonds provide greater returns with less risk. Tuesday saw a 14 basis point increase in US 10-year bond rates to 4.66%, the highest level since 2024.
There are many elements that have come together to cause the current FPI selling. Dollar-denominated assets have become more appealing as a result of the Federal Reserve delaying a possible rate decrease owing to unexpectedly strong US inflation statistics, which has caused FPIs to repatriate money, according to Sonam Srivastava, founder and fund manager of Wright Research.
As to Srivastava, further considerations may include profit booking by foreign portfolio investors (FPIs) in order to safeguard profits and realign their portfolios amid apprehensions about stretched valuations in certain segments of the Indian market.
Market exporters also think that FPIs’ persistent selling poses a risk to the Indian market since it may cause stock values to correct, especially in industries where FPI involvement has been substantial.
According to Srivastava, if the current Indian corporate earnings season produces impressive results that surpass expert projections, investor sentiment may improve and foreign direct investment (FII) inflows looking to profit from encouraging trends may ensue. Second, FPIs searching for attractive investment locations may be drawn to India due to predictions of strong economic growth relative to other economies.
But there are other possible hazards to take into account. He said, “Main central banks’ tightening of monetary policies and persistent worries about global inflation might reduce investor risk appetite and restrict FPI inflows.
On Wednesday, April 17, the domestic stock market was closed due to Ram Navami. On Thursday, the stock market will open again. Because of the tension between Israel and Iran, investors are anticipated to exercise caution.
