FPIs offload ₹5,254 crore in Indian equities on high US bond yields, turn net sellers in debt markets

Foreign portfolio investors (FPIs) have tuned net sellers in Indian markets ever since reducing their momentum of buying this month with the onset of the new fiscal 2024-25 (FY25). This comes after reporting solid inflows in the previous fiscal. However, experts are doubtful if the inflows will continue in the near-term due to the India-Mauritius tax treaty and weak global cues.

FPIs have offloaded ₹5,254 crore worth of Indian equities and the total outflow stands at ₹8,982 crore as of April 19, taking into account debt, hybrid, debt-VRR, and equities, according to National Securities Depository Ltd (NSDL) data. The total debt outflows stand at ₹6,174 crore so far this month.

‘’FPIs sold equity worth ₹16,452 crore through exchanges. This kind of big selling happens whenever the US bond yields spike beyond expectations,” said Dr. V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services.

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Why did FPIs snap buying streak?

In April through 19th FPIs have sold equity for ₹13,546 crore. The hotter-than-expected US inflation and the consequent spike in bond yield (the 10-year rising above 4.6 per cent) led to big selling in the Indian cash market.

‘’Now, the total FPI flow for April stands dwindled to ₹5,639 crore. It was the FPI investment through the primary market of ₹22,092 crore which enabled the total equity flows to touch ₹5,639 crore, ‘’ said Dr. V K Vijayakumar.

A major trend in FPI activity this month is that FPIs have turned sellers into debt after sustained buying for several months. In April through 20th FPIs sold debt worth ₹12,885 crores. This again is the consequence of the rising US bond yields and the concern regarding rupee depreciation.

Coming to portfolio changes by the FPIs, this month FPIs have been big sellers in IT in anticipation of poor Q4 results. They were also sellers in FMCG and consumer durables. FPIs were buyers in autos, capital goods, telecom, financial services and power.

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FPI activity in Indian markets

FPIs pumped ₹35,098 crore in Indian equities during March – the highest inflows recorded in the first three months of 2024. FPI outflow initially declined in February until they were net buyers by the end of the month, despite high US bond yields. The inflow into Indian equities stood at ₹1,539 crore and the debt market investment rose to ₹22,419 crore in February on top of the ₹19,836 crore bought in January.

The inclusion of government bonds to JPMorgan and Bloomberg debt indices especially triggered foreign fund inflows into debt markets. FPIs turned massive sellers in January 2024 snapping their buying streak as investments saw a sharp uptick in December 2023 after they reversed their three-month selling streak in November 2023.

However, inflow intensified in December on strong global cues after the US Federal Reserve signalled the end of its tightening cycle and raised expectations of a rate cut in March 2024. This led to a crash in US bond yields and triggered foreign fund inflows into emerging markets like India.

For the entire calendar year 2023, FPIs bought ₹1.71 lakh crore in Indian equities and the total inflow stands at ₹2.37 lakh crore taking into account debt, hybrid, debt-VRR, and equities, according to NSDL data. FPIs’ net investment in Indian debt market stands at ₹68,663 crore during 2023.

Overall, only four months in 2023–January, February, September, and October- saw net FPI outflows from Indian equities. May, June, and July each recorded FPI inflows above ₹43,800 crore.

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