NEW DELHI: Foreign Portfolio Investors (FPIs) have offloaded equities worth about Rs 16,000 crore in the last three trading sessions amid a sharp correction in local stocks caused by escalating geopolitical tension in the Middle East and diminishing hope of an early rate cut by the US Federal Reserve.
In the last three sessions, domestic benchmark indices, BSE Sensex and NSE Nifty50, have declined by 2.7% each. Triggered by proposed changes in the India-Mauritius tax treaty, foreign investors offloaded equities worth Rs 8,000 crore on a net basis on Friday. They then sold Rs 3,200 crore of equities on Monday and Rs 4,469 crore on Tuesday, as per National Stock Exchange (NSE) data. The past two-session sell-off is attributed to growing tension between Israel and Iran, and a sharp rise in US bond yields.
Not only in India, foreign investors have seen selling stocks in other emerging markets as well and they see better opportunity and lower risk in safe assets such as government-backed bonds and gold. US 10-year bond yields surged 14 basis points to 4.66% on Tuesday, the highest level in 2024.
“The recent FPI selling can be attributed to a confluence of factors. The Federal Reserve’s delay in a potential rate cut due to surprisingly high inflation data in the US has made dollar-denominated assets more attractive, prompting FPIs to repatriate funds,” said Sonam Srivastava, Founder and Fund Manager at Wright Research.
The other factors, according to Srivastava, can be profit booking by the FPIs to secure returns and rebalance their portfolios amidst concerns regarding stretched valuations in certain sectors of the Indian market.
Market exporters also believe that continuous selling by FPIs presents a potential headwind for the Indian market as it can lead to a correction in stock prices, particularly in sectors that have witnessed significant FPI participation.
Srivastava says that if the current corporate earnings season in India delivers strong results, exceeding analyst expectations, it could improve investor sentiment and attract FPI inflows seeking to capitalize on positive developments. Secondly, expectations of robust economic growth in India compared to other markets could entice FPIs looking for attractive investment destinations.
“However, there are also potential risks to consider. Continued concerns over global inflation and tightening monetary policies by major central banks could dampen investor risk appetite and limit FPI inflows,” he added.
The domestic stock market remained closed on Wednesday, April 17, on account of Ram Navami. The equity market will resume on Thursday. Investors are expected to remain cautious on account of tension between Israel and Iran.