FPIs become net sellers, withdraw Rs 13,400 cr from equities since early August

The latest outflow was triggered by the end of the yen carry trade. (Representative data)

2 minutes of reading Last update: August 11, 2024 | 10:56 AM IST

After pumping in money over the past two months, foreign investors turned net sellers, pulling out over Rs 13,400 crore from Indian equities in August on unwinding of yen carry trade and fears of a US recession.

As per the depository data, this year foreign financial institutions have invested a net amount of Rs 22.134 billion in equities.

If the market continues to rally, foreign investors are likely to push for more selling as valuations of Indian stocks remain high, especially when compared to valuations in other markets, said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

As per the data, foreign portfolio investors (FPIs) withdrew a net amount of Rs 13.431 billion from equities this month (August 1-9).

This followed an inflow of Rs 32,365 crore in July on expectations of stable economic growth, continued reforms and a better-than-expected earnings season, and Rs 26,565 crore in June on political stability and a sharp rebound in markets.

Earlier in May, FPIs withdrew Rs 25,586 crore on worries over election results and over Rs 8,700 crore in April on worries over changes in the India-Mauritius tax treaty and sustained rise in US bond yields.

The latest outflow was triggered by an unwinding of the yen carry trade after the Bank of Japan raised interest rates to 0.25 percent, as well as concerns about a U.S. recession, Vijayakumar said.

The situation was further exacerbated by rising geopolitical tensions, particularly the escalating conflict between Israel and Iran, which prompted investors to reduce risk exposure, said Himanshu Srivastava, director of research at Morningstar Investment Research India.

Moreover, the higher valuation of Indian markets has provided foreign investors with an attractive opportunity to realise profits.

Meanwhile, factors like rising fears of a US recession, fuelled by weak employment data, and uncertainty over the timing of interest rate cuts led to capital outflows from Indian equities, Srivastava added.

FPIs were steady sellers in financial services in the fortnight ended July 31. However, they were buyers in IT, autos, capital goods and metals during the review period.

On the other hand, FPIs invested Rs 6,261 crore in the debt market in August. This takes the total to Rs 97,249 crore in 2024.

First published: August 11, 2024 | 10:56 AM IST