Foreign Portfolio Investors (FPI) continued their relentless selling of Indian equities this past week with net outflows to the tune of ₹ 7,342 crore . This marked the ninth straight week of their remaining net sellers, depositories data showed.
However the FPIs are expected to moderate their selling spree this upcoming week with equity markets on Monday set to cheer the BJP’s thumping win in Delhi Assembly elections, say market experts.
Moreover, both dollar index and US bond yields are indicating a softening trend, they noted.
The BJP making a comeback to the seat of power in national capital is likely to bolster market sentiments which are already supported by recent budget announced consumption momentum boost via ₹ 12 lakh income tax exemption threshold and monetary push by RBI through repo rate cut, they added.
V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said the victory of the BJP in the Delhi elections is a major achievement for the ruling dispensation. This is likely to positively impact the market in the short run, he said.
However, the medium to long-term trend in the market will depend on the recovery in GDP growth and earnings recovery, Vijayakumar said.
The sentiments in the Indian market are slowly improving in response to an excellent Budget and the rate cut by the MPC, he added.
“The strength in the dollar index and the high US bond yields continue to force the FPIs to sell. Going forward, FPIs are likely to reduce their selling since the dollar index and US bond yields are indicating a softening trend”, Vijayakumar said.
Till February 7 this calendar year, FPIs have net sold equities worth ₹ 85,369 crore.
Manoj Purohit, Partner & Leader, FS Tax, Tax & Regulatory Services, BDO India, said though the FPI inflows are still not turned fully green, the announcements made in the Budget last week followed by the Central Bank’s policy release this week has made India back to forefront as the fastest growing among emerging economies of the world.
Plunge investing
The foreign investors fraternity are all set to take a plunge investing in the India market to get sound, effective net returns from a long-term perspective, he said.
“Given the volatile, subtle, and unpredictable market events, India still stands grounded well with the government taking all rightful measures to make it ready to face the global economic challenges that lies ahead”, Purohit added.
Allowing 100 percent FDI in insurance will deepen the budding insurance market with more penetration, competitive policy framework pushing to adopt the global best practices in the insurance sector with the entry of large offshore players, he said.
Himanshu Srivastava, Associate Director – Manager Research, Morningstar Investment Research India, said several factors contributed to this ongoing sustained exodus of foreign investment from Indian equities. A key driver was global trade tensions, as the United States imposed tariffs on countries including Canada, Mexico, and China, heightening fears of a potential trade war. This uncertainty triggered a risk-averse sentiment among global investors, prompting capital flight from emerging markets like India, Srivastava added.
He noted that RBI’s policy rate cut by 25 basis points failed to significantly uplift investor sentiment, as concerns over slowing GDP growth and weak corporate earnings persisted.
Further exacerbating the situation, the Indian rupee depreciated sharply, breaching ₹ 87 per U.S. dollar mark for the first time. A weaker rupee erodes returns for foreign investors, making Indian assets relatively less attractive and adding to the pressure on FPI flows.
Moving forward, market sentiment will likely hinge on global macroeconomic developments, domestic policy measures, and currency movements, Srivastava added.
Debt Markets Sees Net FPI Inflows
Although the past week saw equity outflows from FPIs, these investors were quite keen on buying Indian debt, pumping in aggregate amount of about ₹ 17,000 crore this month in debt market till Feb 7.