May 12th 2024.
In the bustling city of New Delhi, there has been a recent surge of activity in the stock market. It has been reported that foreign investors have withdrawn a staggering amount of Rs 17,000 crore from Indian equities in the first 10 days of the month. This sudden move has been attributed to a combination of factors, including the upcoming general election, uncertainty surrounding its outcome, expensive valuations, and a desire to book profits.
The amount pulled out by foreign investors in the first 10 days of this month is significantly higher than the net withdrawal of Rs 8,700 crore seen in the entire month of April. The concerns over India's tax treaty with Mauritius and the continuous rise in US bond yields have also contributed to the investors' decision to pull out their funds. However, in the months prior, FPIs had made substantial investments of Rs 35,098 crore in March and Rs 1,539 crore in February. Looking ahead, it is anticipated that corporate India's strong financial performance in the fourth quarter of FY24 will be rewarded.
Despite the current cautious stance of FPIs, there is hope for their return in significant numbers once the election results are clear and political stability is established. Trivesh D, COO at Tradejini, believes that favorable outcomes in the election could lead to a boost in investments. According to data from the depositories, FPIs have experienced a net outflow of Rs 17,083 crore in equities this month.
There are several reasons behind this sudden selling by FPIs. With the ongoing general election and uncertainty surrounding its outcome, investors are wary of entering the market. Himanshu Srivastava, Associate Director - Manager Research at Morningstar Investment Research India, believes that this is the main reason behind the aggressive selling. Additionally, with Indian markets trading at high valuations, many investors saw this as an opportunity to book profits and wait for more clarity on the country's political landscape.
Krishna Appala, smallcase manager & Senior Research Analyst at Capitalmind, believes that the current political uncertainty in India and appealing US interest rates have caused FPIs to shift to a risk-off mode. Another reason for the selling could be profit booking by FPIs in anticipation of a market correction, especially around the time of the election results. On the global front, the US Federal Reserve has indicated that there will be no rate cuts until inflation cools, which has raised doubts about the possibility of an early rate cut. This has led to the appreciation of the US dollar and a surge in US Treasury yields. On the other hand, FPIs have also withdrawn Rs 1,602 crore from the debt market during this period.
Before this recent outflow, foreign investors had injected 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 significant inclusion is expected to bring in around $20-40 billion in the next 18 to 24 months.
So far, in this month, FPIs have been sellers while domestic institutional investors have been buyers. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, states that there has been a cumulative DII buying of Rs 19,410 crore. Despite the recent outflows, FPIs have still invested a net amount of Rs 14,307 crore in the debt market in 2024. However, they have withdrawn a net amount of Rs 14,860 crore from equities.
In conclusion, the Indian stock market has been experiencing a lot of activity due to various factors such as the general election, economic uncertainty, and global market trends. While foreign investors have pulled out a significant amount, there is still hope for their return in the future. As we await the election results and the overall economic landscape, it remains to be seen how the stock market will continue to evolve.
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