FPIs Shift to Selling Mode, Withdraw Rs 13,138 Crore from Indian Equities
Foreign portfolio investors (FPIs) have withdrawn Rs 2.37 lakh crore from Indian equities this year, with Rs 13,138 crore pulled out in the first two weeks of September alone. This trend is attributed to global uncertainties, rising crude oil prices, increasing US bond yields, and a strong dollar, which have dampened investor risk appetite. The latest outflow has pushed the total withdrawals well above the Rs 1.66 lakh crore that foreign investors exited during all of 2022.
The recent selling follows a two-month buying spree, where FPIs invested Rs 20,200 crore in July and Rs 29,630 crore in August, according to data from Central Depository Services (India) Ltd. Prior to this buying phase, FPIs had sold off equities for four consecutive months from March to June.
Global Factors Driving Withdrawals
Vedant Gupte, Co-Founder and CEO of Trackk, indicated that the current withdrawal is primarily influenced by external factors rather than domestic issues. He stated, “September selling is a dollar-and-crude story, not an India story. When US yields firm up and oil climbs, money leaves every emerging market.”
Crude oil prices have surged amid geopolitical tensions, with Brent crude reaching $109.97 per barrel and remaining above $102 per barrel. This increase in oil prices is contributing to inflationary pressures, which in turn affect monetary policy and investor sentiment.
Impact of Rising Bond Yields
Pabitro Mukherjee, Deputy Vice President-Research at Bajaj Broking, noted that rising bond yields and the likelihood of a rate hike at the upcoming US Federal Open Market Committee (FOMC) meeting are also influencing investor behavior. V K Vijayakumar, chief investment strategist at Geojit Investments, warned that elevated crude prices and higher inflation could lead to tighter monetary policy, resulting in further increases in bond yields.
He cautioned that if the US 10-year bond yield approaches 5 percent, it could trigger a sharp correction in global equity markets, prompting FPIs to shift their investments to high-yielding bonds. In addition to equities, FPIs also withdrew Rs 1,350 crore from the debt market through the Fully Accessible Route and Rs 955 crore through the general route during the same period. They made a modest investment of Rs 29 crore through the Voluntary Retention Route.
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