FPIs invest ₹10,690 cr in Indian stocks this month; check short-term negatives

In the cash market FPIs sold Indian stocks worth ₹15,817 crore so far this month. Strength in the US dollar index at well around 104 and the US 10-year bond yield remaining around 4.25 per cent are short-term negatives for FPI flows to emerging markets like India, according to analysts.

‘’The consolidated NSDL data shows the August FPI investment through 26th at ₹10,689 crore. But this figure includes investment through the primary market and bulk deals, which have been gathering momentum recently…An important feature of FPI investment is their consistent buying in capital goods. And, of late, they have started selling in financials,” said Dr. V K Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

In view of the strong dollar and rising US bond yields, FPIs are likely to continue selling in the cash market in the near-term. The recent volatility in FPI flow is also attributed to renewed fear of the Fed hiking rates further in its next policy in September, according to analysts.

‘’The poor monsoon in August and its skewed spatial distribution may keep inflation elevated, and this is becoming an area of concern impacting sentiments in the market. This might impact FPI investment, too,” added Dr. V K Vijayakumar.

Meanwhile, FPIs recorded their fifth straight monthly buying in the Indian markets during July 2023 – slightly less that ₹47,148 crore in June – which was the highest monthly FPI inflow since August 2022. Sustained FPI inflows had powered the uptick in the blue-chip Nifty 50 and S&P BSE Sensex, driving the benchmarks to record highs in July.

Analysts observed that the last FED minutes released were more hawkish than expected. The US 10-year yield is trading at a 16-year high and the 2-year yield is trading at 5 per cnt. At the same time valuation of Indian equity is not cheap and is supported by funds flow, according to market observers. 

‘’The FPI flows may remain subdued in the short term until FED clarity but India will remain a sweet spot for long-term allocation among emerging markets. All other emerging markets have some issue or other. The next 5-10 years belong to India and FPIs have no choice but to come to India,” said Mukesh Kochar, National Head – Wealth Management, AUM Capital.

‘’The Indian economy is witnessing a good amount of capex after a long period of time both from the private sector as well as from the government. The demographic combination is the best in the world and poised for robust growth over the next few years,” added Kochar.

Also Read: FIIs offload over ₹4,000 crore ahead of Fed Chair Powell speech; DIIs net buyers again

On Friday, domestic equity benchmarks Sensex and Nifty extended losses for the second consecutive session as the market witnessed an all-round selloff while investors directed their attention towards the Jackson Hole symposium in search of indications about the future direction of interest rates. 

Sensex closed with a loss of 366 points, or 0.56 per cent, at 64,886.51 while the Nifty50 closed the day at 19,265.80, down 121 points, or 0.62 per cent. All sectors traded in sync with the benchmark wherein realty, metal and pharma were the top losers.

For the week, Sensex slipped by 0.10 per cent while the Nifty declined by 0.23 per cent. On the other hand, the BSE Midcap index rose 1.50 per cent while the Smallcap index jumped 2.19 per cent for the week. The market was influenced by a combination of factors including escalating US bond yields, downward pressure exerted by heavyweights like Reliance Industries, and the minutes of the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) policy meeting that flagged near-term risks to inflation. 

Updated: 26 Aug 2023, 05:01 PM IST