FPIs dump ₹24,700 crore worth Indian equities in January as Bond Yields surge

Foreign Portfolio Investors have offloaded Indian equities worth a whopping ₹24,700 crore in January, raising eyebrows in financial circles. The key catalyst behind this move is the surge in bond yields in the United States.

Data from depositories reveals that FPIs have, however, maintained a bullish stance in the debt market, injecting ₹17,120 crore during the same period. The net investment in Indian equities for January stands at ₹24,734 crore, a significant dip compared to the robust investments of ₹66,134 crore in December

V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services, points to the rising bond yields in the US as the primary cause for concern, triggering the recent sell-off in the cash market. He notes that the global stock market rally was initially fueled by the Fed's pivot, causing the 10-year bond yield to drop from 5% to around 3.8%. However, the current rebound to 4.18% indicates that a Fed rate cut may only materialize in the second half of 2024, reported Business Today.

Entering the new year cautiously, FPIs adopted a profit-booking strategy in the Indian equity markets, especially as they reached all-time highs. Uncertainty surrounding the interest rate scenario further compelled FPIs to remain on the sidelines, awaiting clearer signals before making investment decisions in emerging markets like India.

In contrast, FPIs have shown a positive inclination towards the debt market, with experts attributing the trend to JP Morgan Chase & Co.'s announcement last September to include Indian government bonds in its benchmark emerging market index from June 2024. The debt market witnessed FPI investments of ₹18,302 crore in December, ₹14,860 crore in November, and ₹6,381 crore in October.

Notable sector-wise movements include FPIs selling in auto & auto ancillary, media & entertainment, and marginally in IT, while buying in oil and gas, power, and selectively in financial services. The total FPI flows for 2023 stood at ₹1.71 lakh crore in equities and ₹68,663 crore in the debt market, with a combined infusion of ₹2.4 lakh crore into the capital market. This follows a challenging year in 2022, marked by a worst net outflow of ₹1.21 lakh crore due to aggressive global central bank rate hikes. Prior to this, FPIs had consistently invested over the past three years.