Foreign investors reduced their massive influx into Indian equities in the past three months: What it means for Indian Economy?
Due to increasing crude oil prices and reviving inflation fears, foreign investors reduced their massive influx into Indian equities in the past three months to just Rs 12,262 crore. FPIs are adopting a "wait and watch" strategy as opposed to completely changing course.
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The global economy remains unclear, and the underlying situation is rapidly shifting. According to Himanshu Srivastava, Associate Director - Manager Research, Morningstar India, this will make the flows from FPIs unpredictable.
Lowest Investment in last four months
Data from depositories show that in the month of August, Foreign Portfolio Investors (FPIs) made a net investment of Rs. 12,262 crore in Indian shares. This amount comprises investments made through the primary market as well as recent developments in bulk agreements. In the previous four months, this investment has been the smallest. Prior to this investment, FPIs had made over Rs 40,000 crore in investments in Indian shares during the previous three months.
Worries about inflation and rising crude oil prices
In July, June, and May, there was a net inflow of FPIs totaling Rs 46,618 crore, Rs 47,148 crore, and Rs 43,838 crore. Prior to that, figures from the depositories showed that the inflow total was Rs. 11,631 crore in April and Rs. 7,935 crore in March. The decrease in FPI investment in August was linked by Srivastava to worries on the global macroeconomic front, namely rising crude oil prices and reviving inflation threats.
Additionally, he added, a firming up of bond yields in the US would have caused some international investors to flee riskier countries in favour of US treasuries' higher level of certainty and better risk-reward profile. Additionally, he continued, the intermittent advance in the Indian equity markets may have caused its valuation to rise above certain investors' comfort levels.
Strengthening dollar and Increasing bond yields Impact on FPIs
August saw FPIs selling across the majority of emerging countries, mostly as a result of a stronger dollar and increasing bond yields. According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, profit booking in the financials also led to FPI selling. A particular kind of investor, Private Equity (PE) funds, can be partly blamed for the decrease in inflow, according to Mayank Mehraa, small case manager and lead partner at Craving Alpha.
A large portion of these PE firms handle investments on behalf of clients, including conservative organizations like endowment funds. He said that these endowments often look for reliable and low-risk returns to support long-term financial objectives like scholarships or charity endeavors. In addition to investing in stocks last month, FPIs spent Rs 7,732 crore on debt in the nation.
With this, FPI equity investments have totaled Rs. 1.35 lakh crore and Rs. 28,200 crore in the debt market so far this year. Regarding industries, FPIs have regularly purchased capital goods. Recently, they have also purchased healthcare.
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