Foreign Portfolio Investors (FPIs) have been on a selling spree in Indian markets, pulling out a massive Rs 22,000 crore from equities so far in May. This mass exodus comes amidst uncertainty surrounding the outcome of the Lok Sabha elections and the outperformance of Chinese markets. The trend of outflows began with a net outflow of over Rs 8,700 crore in April, driven by concerns over a tweak in India’s tax treaty with Mauritius and a sustained rise in US bond yields.
In contrast to the recent outflows, FPIs had made significant net investments in Indian equities in the months prior. In March, FPIs invested a net amount of Rs 35,098 crore, followed by a modest investment of Rs 1,539 crore in February. The sudden shift in sentiment and the significant outflows in May highlight the impact of election-related jitters on foreign investors’ confidence in the Indian market.
As the election scenario unfolds, clarity on the political front is anticipated to drive FPI interest back into Indian equities. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services, suggests that a post-election rally may even commence before the election results are announced. However, the uncertainty surrounding election outcomes has kept foreign investors cautious about entering the market at this juncture.
Apart from equities, FPIs invested Rs 2,009 crore in the debt market during the same period. The long-term outlook for FPI flows into Indian debt remains positive, especially with India’s upcoming inclusion in global bond indices. This positive outlook is further bolstered by JP Morgan Chase & Co.’s decision to add Indian government bonds to its benchmark emerging market index from June 2024.
Despite the recent outflows in equities, FPIs have invested a net amount of Rs 46,917 crore in the debt market in 2024 so far. The shifting investment patterns of foreign investors reflect the evolving market dynamics influenced by global macroeconomic uncertainty and election-related factors.
