In June, FPIs Withdrew Rs 14,800 Cr from Indian Equities in the Face of Attractive Chinese Stock Valuations and Election Results

The first week of June saw a withdrawal of approximately Rs 14,800 crore from Indian stocks by Foreign Portfolio Investors (FPIs), mostly due to the allure of excellent Chinese market valuations and the outcome of the Lok Sabha election in India.

This comes after net outflows in prior months as a result of political unpredictability and state of the world economy. Despite this, given India’s inclusion in international bond indices, the long-term outlook for foreign money inflows into Indian debt is still favourable.

Elements Affecting FPI Outflows :

Effects of the Lok Sabha Elections :

FPI flows in June were significantly impacted by the outcome of the general election in India. Exit polls that indicated a resounding win for the BJP and the NDA administration provided some initial hope, according to Himanshu Srivastava, Associate Director – Manager Research at Morningstar Investment Research India.

On the other hand, market sentiment changed when actual outcomes deviated from expectations, which resulted in significant withdrawals by international investors. Investors were forced to take a cautious “wait and watch” stance as a result of the parliamentary election’s lack of a clear majority.

Change to Appealing Chinese Stock Prices :

Due to the high valuations of Indian stocks, foreign portfolio investors are moving their money to more alluring markets. According to V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, investors are becoming more interested in Chinese equities listed on the Hong Kong Exchange because of their attractive valuations, which seems to be reducing the negativity surrounding Chinese stocks.

Historical Background of FPI Disbursements :

The June withdrawal comes after a net outflow of over Rs 8,700 crore in April due to worries regarding a change in India’s tax treaty with Mauritius and rising US bond yields, and a net outflow of Rs 25,586 crore in May due to election anxieties. The combined impact of these elements has resulted in notable withdrawals from Indian equity markets in the 2024’s first half.

FPI Invests in the Debt Market of India :

FPIs have consistently expressed interest in the Indian debt market, in contrast to the outflows of equity. Following significant inflows in March ($13,602 crore), February ($22,419 crore), and January ($19,836 crore), FPIs invested more than Rs 4,000 crore in debt securities in June.

The predicted addition of Indian government bonds to the JP Morgan Index, which is anticipated to increase the allure of Indian debt to international investors, is a major factor driving this interest.

Future Prospects for FPI Flows :

Regarding the long-term prospects of FPI flows into Indian debt, market analysts are still upbeat. It is anticipated that the addition of Indian bonds to international indices will increase foreign investment in this market.

However, given the continuous macroeconomic uncertainty in the world and the volatility of the market, short-term FPI flows are probably going to stay erratic.

An Overview of FPI Operations in 2024 :

In conclusion, FPIs have invested Rs 57,677 crore in the debt market and taken a net 38,158 crore out of Indian stocks thus far in 2024. This twin pattern highlights the opposing forces affecting FPI behaviour: the expected inclusion in global bond indexes propelling debt investments, and political and economic concerns affecting equities.

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