With the latest pull out of funds from Indian markets, FPIs have become net sellers for fourth consecutive month
”With US Fed signalling that it will start hiking interest rates soon and shrink its bond holdings, FPIs went on a selling spree in the Indian equity markets,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India
New Delhi:
Foreign portfolio investors (FPIs) pulled out a whopping Rs 28,243 crore from Indian equities in January as US Fed signalled interest rate hike.
As per the depositories data, FPIs took out Rs 28,243 crore from equities between January 3-28.
During the same period, they pumped in Rs 2,210 crore into debt segment and Rs 1,696 crore into hybrid instruments.
The total net outflow stood at Rs 24,337 crore.
With the latest pull out of funds from Indian markets, FPIs have become net sellers for fourth consecutive month.
”With US Fed signalling that it will start hiking interest rates soon and shrink its bond holdings, FPIs went on a selling spree in the Indian equity markets,” said Himanshu Srivastava, Associate Director – Manager Research, Morningstar India.
This is indicative of an end to the ultra-loose monetary policy regime.
”FPIs have been booking profits in IT where they have been sitting on big profits after the huge appreciation in the last two years,” VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, noted.
FPI selling has depressed the stock prices of financials, particularly that of leading banks, he added.
Nine of the top-10 most valued companies together lost a whopping Rs 3,09,178.44 crore (about Rs 3 trillion) in market valuation last week as selloffs continued.
In a holiday-shortened past week, the 30-share BSE Sensex plummeted 1,836.95 points or 3.11 per cent amid geopolitical tensions, global sell-off triggered by a hawkish US Federal Reserve and unabated foreign fund outflows.
From the top-10 list, State Bank of India was the lone gainer as its valuation jumped Rs 18,340.07 crore to reach Rs 4,67,069.54 crore.
Coming to those whose valuation got eroded were Reliance Industries Limited (RIL), Tata Consultancy Services (TCS), HDFC Bank, Infosys, ICICI Bank, Hindustan Unilever Ltd (HUL), HDFC, Bajaj Finance and Bharti Airtel.
Besides, the bond yields globally have surged in recent times in expectation of a hike in interest rates by the US Fed which has made investors risk-averse prompting them to cut exposure in riskier assets and move towards safe havens such as gold, Srivastava said.
The investment in Indian debt market could be a result of FPIs parking their investments from a short-term perspective given their cautious stance towards Indian equities.
Other emerging markets like South Korea, Taiwan and Philippines witnessed negative flows of USD 2.77 billion, USD 2.5 billion and USD 56 million, respectively, while Thailand and Indonesia witnessed inflows to the tune of USD 442 million and USD 418 million, respectively, said Shrikant Chouhan, Head – Equity Research (Retail), Kotak Securities.
The central bank’s determination to curb high inflation and Fed’s commencement of asset tapering after hiking borrowing costs will likely keep equity markets volatile, Chouhan said.
Also, rising crude oil prices and inflation are expected to keep FPIs flows in emerging markets volatile. Additionally, investors’ focus will on the upcoming Union budget and state elections in India, he added.
Investments in Indian capital through participatory notes (P-notes) rose to Rs 95,501 crore till December-end
Investments in Indian capital through participatory notes (P-notes) rose to Rs 95,501 crore till December-end and experts believe that flow is expected to be ”flat to negative” next month.
P-notes are issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be a part of the Indian stock market without registering themselves directly. They, however, need to go through a due diligence process.
According to Securities and Exchange Board of India data, the value of P-note investments in Indian markets — equity, debt and hybrid securities — was at Rs 95,501 crore by December-end as compared to Rs 94,826 by November-end.
Prior to that, investment level was at Rs 1.02 lakh crore in October end, which was the highest since March 2018, when P-notes had invested to the tune of Rs 1.06 lakh crore.
Abhay Agarwal, Founder and Fund Manager, Piper Serica, a Sebi-registered PMS, said P-notes data for December suggest a flattish trend. It suggests equity inflows of about Rs 675 crore and debt inflows of about Rs 716 crore. This positive inflow is surprising since FPIs were aggressive sellers in equity and debt segment throughout December with net outflows of Rs 19,026 crore and Rs 11,799 crore, respectively.
At the same time, it is difficult to extrapolate the numbers for one month into a longer-term trend. The P-note flows are expected to be flat to negative in the month of January, he said.
Of the total Rs 95,501 crore invested through the route till December 2021, Rs 84,948 crore was invested in equities, Rs 10,322 crore in debt, Rs 231 crore in hybrid securities.
Sonam Srivastava, founder, Wright Research, Sebi-RIA said that P-notes participation is near the minimum level in six months for equities but has seen an uptick in the debt side. This pattern is as expected globally.
”We have seen a flight from risky assets among managers and a preference for debt with rising interest rates yields. The perception of Indian markets being overvalued last quarter has added to this slowdown, and the announcement by the FED that they are going to raise interest rates has also made the equity markets vulnerable,” she added.
The assets under the custody of FPIs rose to Rs 52.72 lakh crore in December-end from Rs 52.24 lakh crore in November-end.
Piper Serica’s Agarwal said FPIs have been aggressive sellers across the board in emerging markets especially in Asia. While the fear of Omicron has receded the fear of Fed tapering has converted into a reality now. ”We are seeing sharp corrections in speculative assets classes especially cryptos as liquidity is winding up from global financial system. While India continues to be an extremely attractive opportunity for FPIs in the long term, we expect their short-term flows to be anemic at best due to technical factors,” he added.