FPIs pull out equities worth Rs 976 crore this week amid rising dollar, bond yields

After two weeks of buying, FPIs turned net sellers in Indian equities this week, with a net withdrawal of Rs 976 crore amid a strengthening US dollar and steady rise in US 10-year bond yields, impacting investor sentiment.

Foreign Portfolio Investors (FPIs) began the week on a positive note, investing Rs 3,126 crore in equities during the first two trading sessions (December 16-20).

However, the trend reversed in the latter half of the week, with FPIs offloading equities worth over Rs 4,102 crore in the subsequent three sessions. This resulted in an overall net outflow of Rs 976 crore during the week, data from National Securities Depository Limited showed.

Despite this short-term reversal, the broader December trend remains positive. FPIs have infused Rs 21,789 crore into Indian equities so far this month, reflecting continued confidence in India's economic growth potential and its resilient markets.

FPIs adopted a cautious approach due to the US Fed meeting and uncertainty about its outcome and future policy direction, said Himanshu Srivastava, Associate Director, Manager Research, Morningstar Investment Research India.

While the Fed cut interest rates by 25 bps for the third time this year, it signalled fewer rate cuts in the future, dampening investor sentiment and triggering global market sell-offs, he added.

Additionally, factors like high valuations, weak corporate earnings for the September quarter, expectations of subdued results for December, rising inflation, slower GDP growth, and a depreciating rupee have further weighed on investor confidence, he noted.

"Rising US dollar (dollar index above 108) and steady increase in the US 10-year bond yields to 4.5 per cent contributed to the FPIs selling.

"India-specific issues like slowing growth concerns and flat corporate earnings in Q2 also contributed to the FPIs selling. The strength of the US economy, good corporate earnings growth, and strong dollar are factors favouring the US," VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

FPI selling has brought down the prices of certain large-cap segments, such as banking, making valuations more attractive. Investors can take advantage of this market downturn to invest in quality large caps.

Sectors like pharma, IT, and digital platform companies are expected to remain resilient and defy the downtrend.

Earlier in November, FPIs pulled out a net Rs 21,612 crore and a massive Rs 94,017 crore in October, the worst monthly outflow on record.

Interestingly, September had marked a nine-month high for FPI inflows, with a net investment of Rs 57,724 crore, highlighting the volatility in foreign investment trends.

So far in 2024, FPI investment has reached Rs 6,770 crore, data with the depositories showed.