FPIs withdraw Rs 22,000 crore from equities & invest Rs 2,009 crore in debt market in May

New Delhi: Foreign investors have pulled out a massive Rs 22,000 crore from Indian equities so far this month, due to uncertainty surrounding the outcome of the Lok Sabha elections and outperformance of Chinese markets.

This came following a net outflow of over Rs 8,700 crore in the entire April on concerns over a tweak in India’s tax treaty with Mauritius and a sustained rise in US bond yields. Before that, FPIs made a net investment of Rs 35,098 crore in March and Rs 1,539 crore in February.

Going forward, as clarity emerges on the election front, Foreign Portfolio Investors (FPIs) are likely to buy in India, since they cannot afford to miss the post-election results rally.

Actually, the rally may begin even before the election results, VK Vijayakumar, Chief Investment Strategist, Geojit Financial Services, said.

According to data with depositories, Foreign Portfolio Investors (FPIs) witnessed a net outflow of Rs 22,047 crore from equities this month (till May 24).

“This heavy selling was triggered by the massive outperformance of Chinese stocks. The Hang Seng index, dominated by Chinese stocks (FPIs invest through the Hong Kong market since there are restrictions on investing through the Shanghai market) surged 7.66 per cent during the last month,” Vijayakumar, said.

The election-related jitters, too, might have influenced FPI selling.

With the on-going general election in the country and the uncertainty surrounding its outcome, foreign investors at this point are wary to enter the Indian equity markets before the announcement of election results, Himanshu Srivastava, Associate Director - Manager Research, Morningstar Investment Research India, said.

On the other hand, FPIs invested Rs 2,009 crore in

the debt market during the period under review.

Before this outflow, foreign investors put in Rs 13,602 crore in March, Rs 22,419 crore in February, Rs 19,836 crore in January. This inflow was driven by the upcoming inclusion of Indian government bonds in the JP Morgan Index.

JP Morgan Chase & Co. in September last year announced it will add Indian government bonds to its benchmark emerging market index from June 2024. This landmark inclusion is anticipated to benefit India by attracting around $20-40 billion in the subsequent 18 to 24 months.

Overall, FPIs have withdrawn a net amount of Rs 19,824 crore from equities in 2024 so far, however, invested Rs 46,917 crore in debt

market.