April 28th 2024.
In the month of April, foreign investors pulled out a significant amount of Rs 6,300 crore from the Indian equities market. This was due to concerns over the tax treaty between India and Mauritius and the continuous rise in US bond yields. This outflow followed a massive investment of Rs 35,098 crore in March and Rs 1,539 crore in February, according to data from the depositories.
The data showed that Foreign Portfolio Investors (FPIs) had a net outflow of Rs 6,304 crore in Indian equities this month. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, explained that the main reason for this renewed selling by FPIs, in both equity and debt, was the sustained rise in US bond yields. At the moment, the 10-year bond yield stands at around 4.7%, which is very attractive for foreign investors.
Meanwhile, Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India, pointed out that the recent changes in India's tax treaty with Mauritius on investments made through the island nation, along with weak cues from the global markets and uncertain macro and interest rate outlook, did not bode well for emerging market equities.
Moreover, the surge in commodity prices, particularly oil, and higher US retail inflation have dashed hopes of an early rate cut by the US Federal Reserve, which has led to a surge in the US 10-year yield. This may have prompted foreign investors to take a cautious approach and wait and watch before making any further investments.
The good news is that the equity market has been able to absorb all the selling by FPIs, thanks to the support from domestic institutional investors, high net worth individuals (HNIs), and retail investors. This could potentially limit the extent of FPI selling in the market.
Apart from equities, FPIs also withdrew Rs 10,640 crore from the debt market during this period. Prior to this, foreign investors had made significant investments of Rs 13,602 crore in March, Rs 22,419 crore in February, and Rs 19,836 crore in January. This influx was mainly driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.
In September last year, JP Morgan Chase & Co. announced that it will add Indian government bonds to its benchmark emerging market index from June 2024. This historic inclusion is expected to bring in around USD 20-40 billion of investments in the next 18 to 24 months, which could greatly benefit India.
Overall, the total inflow for this year so far has been Rs 4,590 crore in equities and Rs 45,218 crore in the debt market. This shows that despite the recent outflow, foreign investors still have confidence in the Indian market and its potential for growth. This is a positive sign for the economy and the Indian stock market.
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