FPIs Pull Out ₹21,201 Crore from Equities in August
Foreign Portfolio Investors (FPIs) have continued their selling spree in the Indian equity markets, pulling out a massive ₹21,201 crore in August. This significant outflow is part of a broader trend where FPIs have been net sellers in the Indian markets for several months now. The data from the depositories shows that FPIs have been withdrawing funds from the Indian equity markets due to various global and domestic factors.
### Global Factors Influencing FPI Outflows
The primary reason for the recent outflow is the unwinding of the yen carry trade. The Bank of Japan raised interest rates to 0.25%, leading to a significant shift in investor sentiment. Additionally, recession fears in the US have been a major concern for FPIs. The US Federal Reserve is expected to cut interest rates in September, but the extent of the cut remains uncertain. There is strong commentary suggesting a 50 basis points rate cut, which could impact global markets and investor confidence.
Another significant factor is the ongoing geopolitical conflicts. These conflicts have led to market volatility and risk aversion, making investors cautious about investing in emerging markets like India. The mixed quarterly earnings and relatively higher valuations of Indian equities have also made them less attractive to FPIs.
### Domestic Factors Influencing FPI Outflows
Domestically, the increase in capital gains tax on equity investments announced in the recent budget has significantly impacted FPI flows. This change has led to a reduction in the attractiveness of Indian equities for foreign investors. Furthermore, the strong rally in the Indian markets in previous quarters has led some FPIs to book profits, contributing to the recent outflow.
### Historical Trends in FPI Flows
FPIs have been experiencing a mixed trend in their investment patterns. In July, they infused ₹32,365 crore into Indian equities, driven by expectations of continued policy reforms and sustained economic growth. However, in the first two trading sessions of August, FPIs pulled out ₹1,027 crore from equities. This trend reversal was attributed to the budget announcement and the subsequent market reaction.
In May, FPIs withdrew a massive ₹25,586 crore due to poll jitters and concerns over a tweak in India’s tax treaty with Mauritius. In April, they withdrew over ₹8,700 crore due to rising US bond yields and the sustained rise in US Treasury yields. These outflows were partly offset by investments in the debt market, where FPIs invested ₹22,363 crore in July, taking the total debt tally to ₹94,628 crore this year so far.
### Future Outlook for FPI Flows
Going forward, the trend for FPI flows will be influenced by developments in the US economy and markets. The US Federal Reserve’s interest rate cut in September and its extent will be crucial in setting the tone for FPI flows in August. The mixed quarterly earnings and relatively higher valuations of Indian equities will also continue to impact FPI flows.
### Conclusion
The recent outflow of ₹21,201 crore by FPIs from Indian equities highlights the volatility and uncertainty in global markets. While the Indian economy continues to show signs of growth, the impact of global factors and domestic policy changes cannot be ignored. As the market reacts to these changes, it will be crucial to monitor FPI flows to understand their impact on the Indian economy and the broader financial landscape.