FPIs cautious on equities; take out Rs 3,776 crore in February so far on spike in US bond yields

Foreign investors adopted a cautious approach offloading Indian equities worth close to Rs 3,776 crore so far this month owing to a spike in the US bond yields and uncertainty over the interest rate environment in the domestic as well as the global front.

In contrast, they are bullish on the debt market and injected Rs 16,560 crore in during the period under review, data with the depositories showed. According to the data Foreign Portfolio Investors (FPIs) pulled out a net sum of Rs 3,776 crore from the Indian equities this month (till February 16). This came following a net withdrawal of Rs 25,743 crore in January. With this, the total outflow for this year has reached Rs 29,519 crore.

"The spike in US bond yields triggered by the higher-than-expected consumer price inflation led to sustained selling by FPIs," V K Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

Also, the latest selling could be attributed to the uncertainty surrounding the interest rate environment, both domestically as well as globally, Himanshu Srivastava, Associate Director Manager Research, Morningstar Investment Research India, said. According to Vijayakumar, the selling by FPIs in equity would have been much higher in response to the rising US bond yields.

But FPIs have been consistently losing the tug of war with DIIs and, therefore, they are a bit reluctant to press aggressive selling. They will have to buy the same stocks later, which they have been selling, when conditions are favourable for buying.

On the continued bullish stance in the debt markets, Morningstar's Srivastava attributed it primarily to the announcement of the inclusion of Indian government bonds in the JP Morgan Index, coupled with the country's relatively stable economy.

This came following a net investment of Rs 19,836 crore in the debt markets in January, Rs 18,302 crore in December, Rs 14,860 crore in November, and Rs 6,381 crore in October, data showed.

In September 2023, JP Morgan Chase & Co announced that it will add Indian government bonds to its benchmark emerging market index from June 2024. The move influenced the inflow in the country's bond markets in the past few months.

Overall, the total FPI flows for 2023 stood at Rs 1.71 lakh crore in equities and Rs 68,663 crore in the debt markets. Together, they infused Rs 2.4 lakh crore into the capital market.

The flow in Indian equities came following a worst net outflow of Rs 1.21 lakh crore in 2022 on aggressive rate hikes by the central banks globally. Before the outflow, FPIs invested money in the last three years.