FPIs cautious on equities; take out Rs 3,776 cr in Feb so far on spike in US bond yields

Foreign investors have sold Indian equities worth about Rs 3,776 crore so far this month due to a rise in US bond yields and uncertainty over the interest rate environment on the domestic and global front. On the contrary, they are bullish on the debt market and invested Rs 16,560 crore during the period under review, depository data showed.


According to the data, foreign portfolio investors (FPIs) pulled out a net amount of Rs 3,776 crore from Indian equities this month (till February 16). This comes after a net withdrawal of Rs 25,743 crore in January.

With this, the total outflow of this year has reached Rs 29,519 crore.

“A rise in US bond yields on the back of higher than expected consumer price inflation led to sustained selling by FPIs,” said VK Vijayakumar, chief investment strategist at Geojit Financial Services.

Additionally, the latest selling can be attributed to uncertainty over the interest rate environment domestically and globally, said Himanshu Srivastava, associate director manager of research, Morningstar Investment Research India.

According to Vijayakumar, selling in equities by FPIs in response to rising US bond yields would have been much higher. But FPIs are constantly losing the tug of war with DIIs and hence, they are a bit reluctant to press aggressive selling. When conditions become favorable for buying, they will later have to buy the same stock that they have been selling. On the continued bullish trend in debt markets, Morningstar’s Srivastava attributed this primarily to the country’s relatively stable economy as well as the announcement of the inclusion of Indian government bonds in the JP Morgan index.

The data shows that there was a net investment of Rs 19,836 crore in the debt market in January, Rs 18,302 crore in December, Rs 14,860 crore in November, and Rs 6,381 crore in October.

In September 2023, JPMorgan Chase & Co. announced that it would include Indian government bonds in its benchmark emerging markets index from June 2024. The move impacted inflows into the country’s bond markets over the past few months.

Overall, total FPI inflows for 2023 stood at Rs 1.71 lakh crore into equity and Rs 68,663 crore into debt markets. Together they invested Rs 2.4 lakh crore in the capital market.

The inflows into Indian equities came after the worst net outflow of Rs 1.21 lakh crore in 2022 due to aggressive rate hikes by central banks globally. FPIs invested money in the last three years before the outflow.